Federal Tax Exemption for a Faith-Based Nonprofit - Phase Two NAPA LEGAL TOOLKIT 2021 - Webflow
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Federal Tax Exemption for
a Faith-Based Nonprofit
Phase Two
N A PA L E G A L TO O L K IT 2 02 1
501(C)(3) STATUS & A BRIEF GRAMMAR LESSON. . . . . . . . . . . . . . . . . . . . . . . . . 4
IS APPLYING FOR EXEMPTION RIGHT FOR EVERY ORGANIZATION?. . . . . . . . . 5
WHY WOULDN’T AN ORGANIZATION ASK THE IRS TO RECOGNIZE
THE ORGANIZATION AS EXEMPT FROM FEDERAL INCOME TAX?. . . . . . . . . . . . 4
A NOTE ON FISCAL SPONSORSHIPS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Table of
WHAT DOES THE IRS FORM 1023 APPLICATION LOOK LIKE? . . . . . . . . . . . . . . . 8
DO NOT SKIP THE INSTRUCTIONS!. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Contents
GETTING TO KNOW THE TWO VERSIONS OF THE IRS FORM 1023. . . . . . . . . . . 11
EMPLOYER IDENTIFICATION NUMBER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
PREPARING FOR CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
BRUSH UP ON VOCABULARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ORGANIZING DOCUMENT AND AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
DIRECTORS & OFFICERS INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
FAMILY AND BUSINESS CONNECTIONS WITH THE ORGANIZATION. . . . . . . . . . 16
BYLAWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
CONFLICT OF INTEREST POLICY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
INTERNATIONAL ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
GRANTS TO INDIVIDUALS OR ORGANIZATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 19
IRS FILINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
BALANCE SHEET & STATEMENT OF REVENUE AND EXPENSES . . . . . . . . . . . . . 20
POLITICAL ACTIVITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Legal Disclaimer: This resource contains general educational information related to legal concepts, but this
information does not constitute legal advice. Anyone seeking legal advice is strongly encouraged to consult ASSEMBLING THE APPLICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
with a licensed attorney regarding any of the matters discussed herein. Although licensed attorneys work
THE ELEMENTS OF AN IRS DETERMINATION LETTER. . . . . . . . . . . . . . . . . . . . . . 22
with Napa Legal, Napa Legal is not a law firm and does not undertake legal representation on behalf of
any clients. Further, no licensed attorney working with or on behalf of Napa Legal agrees to undertake
legal representation on behalf of any client unless the terms of such representation are set forth in a separate,
written representation agreement.
4 Legal Creation of a Faith-Based Nonprofit • P H A S E T W O Legal Creation of a Faith-Based Nonprofit • P H A S E T W O 5
TOOLKIT
501(c)(3) Status & a Brief Grammar Lesson Is Applying for Exemption Right for
AS DISCUSSED IN OUR FIR ST TOOLK IT, understanding the vocabulary used to Every Organization?
describe tax exemption and nonprofit formation is very important. IF YOU FOLLOWED THE STEPS outlined in the first toolkit, your organization
To review, remember that: will have worked with an attorney to properly incorporate the entity. This attorney
presumably ensured that your Articles of Incorporation included a proper purpose
There are two key terms used in nonprofit law that are important to understand clearly from statement, dissolution clause, and other required language to qualify for federal income
the beginning. tax exemption.
The first term is “nonprofit corporation” or “not-for-profit corporation.” A nonprofit Now, you need to determine whether you should ask the IRS to recognize your
corporation is a type of legal entity. Each state has a law that defines what a nonprofit organization as exempt from federal income tax.
corporation is and how it must operate. Some states also use other additional descriptive
phrases, such as “nonstock” or “public benefit.” The defining characteristic of a nonprofit,
regardless of the state in which it was created, is that the organization does not exist to WHY WOULDN’T AN ORGANIZATION ASK THE IRS TO
maximize profit for shareholders. RECOGNIZE THE ORGANIZATION AS EXEMPT FROM
FEDERAL INCOME TAX?
The second term is “tax-exempt organization.” This term is often used synonymously
with “501(c)(3) organization” to refer to organizations that are exempt from federal income Some organizations do not seek the IRS’s recognition of tax-exempt status because
tax under Section 501(c)(3) of the Internal Revenue Code. Federal income tax is the tax they determine either that the organization is automatically exempt or that there
the federal government imposes on a person or entity’s income or revenue. is some other alternative (such as application for inclusion in an existing group
ruling) to submitting an IRS Form 1023 requesting recognition of tax-exempt
Calling a lay apostolate a “nonprofit corporation” or a “501(c)(3) corporation” is like calling status. The available options should be discussed with an attorney or accountant, as
someone “a dark-haired person” or “a male person.” The noun is “person” and “dark-haired” there are strategic reasons why an organization may seek recognition from the IRS
and “male” are adjectives that describe characteristics of this person. “Corporation” is the even if the organization qualifies for the automatic exemption. For example, the
noun. “Nonprofit” is an adjective that describes a type of corporation organized primarily determination letter is often required for grants and certain state exemptions, such
for the execution of a mission. The term “501(c)(3)” describes a characteristic of an as property tax. Additionally, in California, organizations seeking exemption from
organization that has received exemption from federal income tax, either automatically or state franchise tax much submit the Form 3500 or the Form 3500A. Organizations
through an application process. with an IRS determination letter can submit the streamlined, two-page Form 3500A.
Organizations that do not have an exemption letter must use the Form 3500, which is
twenty-five pages and requires extensive supporting documentation.
You can still be an IRS Form 990 non-filers; even if you seek a determination letter
from the IRS (in that case, be sure to indicate the request for non-filing status on the
application).
You can speak with an attorney to determine if your organization is eligible to receive
federal tax exemption through inclusion in a group exemption. In a group exemption,
an organization applies to a parent organization, such as the USCCB, which has
H O M E WO RK
received IRS approve to grant exemption for subordinate organizations. Group
exemptions can help organizations reduce administrative costs and burdens, but group
Watch Part II of NLI’s “Steps to
exemptions also have certain technical requirements.
Success for Lay Apostolates” webinar.
6 Legal Creation of a Faith-Based Nonprofit • P H A S E T W O Legal Creation of a Faith-Based Nonprofit • P H A S E T W O 7
Working with an attorney will help you determine the best option for your organization.
Some other special exemption situations include:
A Note on Fiscal Sponsorships
■ Churches AS DESCRIBED IN TOOLK IT: PHASE I, a fiscal sponsorship is an arrangement
■ Integrated Auxiliaries
through which an exempt sponsor organization provides financial support and
administrative oversight to a recipient organization.
■ Group Ruling
■ Fiscal Sponsorship
The fiscal sponsor can receive tax-deductible donations on behalf of the recipient
organization. The fiscal sponsor retains ultimate control over donated funds, as required
■ Organizations with less than $5,000 in revenue by tax law. The fiscal sponsor must oversee the recipient organization to ensure donated
funds are used for tax-exempt purposes.
The fiscal sponsor may also provide other forms of support to the recipient organization,
including handling certain administrative aspects of the recipient’s operations, providing
insurance coverage, and assisting with fundraising.
Written documentation of the terms of the fiscal sponsorship is important to set the
expectations of both parties and protect both parties’ interests. The fiscal sponsorship
agreement should address the conditions of funding, the accounting of funds donated
for the benefit of the recipient, the duration of the agreement, marketing, branding, and
cross-promotion arrangements, religious identity and commitments, the ownership of
intellectual property, and, of course, applicable fees to be paid to the fiscal sponsor.
Fiscal sponsorships are particularly appropriate for the following types of organizations:
■ Volunteer-Run Organizations
■ Start-up Organizations
■ Event-based Organizations (for example, an annual march or conference)
■ Organizations whose leaders are new to operating exempt organizations and
nonprofits
■ Organizations without stable sources of revenue
■ Overseas organizations with few or no U.S. operations
With the assistance of an attorney, almost any tax-exempt organization may become a
fiscal sponsor. Some organizations specialize in providing fiscal sponsorships, serving as a
nonprofit counterpart to the popular start-up incubators. The nonprofit organization San
Francisco Study Center Inc. provides a directory of fiscal sponsors.
To protect their religious identities, faith-based organizations should seriously consider
HOMEWORK working with a fiscal sponsor whose religious commitments align with the potential
recipient’s mission. An example of a Catholic organization that offers a fiscal sponsorship
Review the Table of Contents and program is the Knights of Columbus Charitable Fund.
Introduction for IRS Publication
557: Tax-Exempt Status for Your
Organization
8 Legal Creation of a Faith-Based Nonprofit • P H A S E T W O Legal Creation of a Faith-Based Nonprofit • P H A S E T W O 9
What Does the IRS Form 1023
Application Look Like?
THE IR S FOR M 1023 LOOK S similar to other IRS forms, such as the IRS Form 1040,
which most individual U.S. taxpayers file every year. The IRS Form 1023 comes in two
versions, each of which will be described in the next section of the toolkit.
As of January 2020, both forms of the IRS Form 1023 must be submitted online. However,
rather than drafting the form online, a best practice is to print the PDF of the application
and complete and finalize a hard-copy draft before submitting the online version. Be sure
to review the hard copy side by side with the appropriate set of instructions. As described
in the previous section, the instructions are more than simply practical guidelines; they
are a tutorial on the background of each question and the factors the IRS considers when
reviewing an application.
In content and structure, the
application looks like a simple,
fill-in-the-blank test. Despite this
appearance, however; the application
In content and structure, has several “traps for the unwary.”
Answering thoughtfully and precisely
the application can mean the difference between
receiving recognition of tax-exempt
status or not.
looks like a simple, Many of the application questions
fill-in-the-blank test. are worded in plain English, but
are actually technical tax and
legal questions. These technical
Despite this appearance, questions require precise and specific
explanations to clearly demonstrate
however; the application to the IRS that the organization
is both organized and operated
has several “traps for
exclusively for exempt purposes.
Working with an experienced
professional, such as an attorney or
the unwary.” accountant, is key to making sure
the answers respond to the issues
underlying the questions.
10 Legal Creation of a Faith-Based Nonprofit • P H A S E T W O Legal Creation of a Faith-Based Nonprofit • P H A S E T W O 11
Do Not Skip the Instructions! Getting to Know the Two Versions
B OTH THE IR S FOR M 1023 and the IRS Form 1023-EZ have extensive
“instruction” sheets that are line-by-line tutorials that provide both guidance and
of the IRS Form 1023
background information regarding each of the questions. AS DISCUSSED IN THE PRIOR section, the IRS Form 1023 is available
in two versions.
Reading through the full instructions is time-consuming, but a worthwhile
investment. If an organization has less than $50,000 in annual revenue and less than $250,000
in assets, the organization might be eligible for a short-form IRS Form 1023, called
Set aside an hour or so each day to read through the instructions with a highlighter the 1023-EZ. The IRS Form 1023-EZ is easier to complete and is processed within
and pen. Mark questions and areas of uncertainty for discussion with your attorney ninety (90) days of submission.
or accountant.
The IRS has issued a simple questionnaire that can help determine eligibility for the
Below are examples of helpful tips and educational information included in the short-form IRS Form 1023-EZ. The questionnaire is available on page 13 of the IRS
IRS Form 1023 Instructions. Form 1023-EZ Instructions.
HOMEWORK
Homework: Read through the
Life Cycle of a Public Charity*
12 Legal Creation of a Faith-Based Nonprofit • P H A S E T W O Legal Creation of a Faith-Based Nonprofit • P H A S E T W O 13
Employer Identification Number You will need the following information:
1. Employer Identification Number
AN EMPLOYER IDENTIFICATION NUMBER (“EIN”) is to an organization
something like what a social security number is to an individual. The EIN is referenced 2. Point of Contact for the application
in all communications and reports to the IRS and is also often used by state and local
3. Mailing Address (best if this is not a home address; it can be a PO Box)
government agencies for reporting and taxing purposes. If an organization doesn’t have an
EIN, or if you aren’t sure whether or not an organization has one, go back to Toolkit Phase I for 4. Fiscal Year End (usually in bylaws or initial board resolutions)
instructions.
5. List of Directors
Preparing for Construction 6. Articles of Incorporation
GATHERING THE REFERENCES, EQUIPMENT, and tools you will need to 7. Bylaws
work with your attorney in advance of preparing the application can help you work more 8. Budget
efficiently and can reduce the stress involved in the process of preparing the application.
9. Revenue and Expense Statement(s)
You will need the following materials:
■ Computer ■ Printed Copy of the IRS Form 10. If applicable:
■ Printer 1023 or 1023 EZ a. Statements of Stocks and Investment Holdings
■ Highlighter ■ Printed Copy of the IRS Form b. Real Estate Holdings
■ Pen
1023 or 1023 EZ Instructions
■ Printed Copy of IRS Publication
■ Notepad 557: Tax Exempt Status for Your
c. Other property (including large equipment)
■ Optional: Post it notes or flags Organization
11. Marketing Material or Screenshots from Website or Flyers from Events
HOMEWORK
For more information on EIN,
watch Part I of our webinar
“Steps to Success for Lay
Apostolates.” You may also wish
to review the applicable section
of the Toolkit Part I.
14 Legal Creation of a Faith-Based Nonprofit • P H A S E T W O Legal Creation of a Faith-Based Nonprofit • P H A S E T W O 15
Brush Up on Vocabulary Organizing Document and Amendments
VOCABUL ARY IS AN IMP ORTANT FUNDAMENTAL to building an EVERY ORGANIZ ATION APPLYING FOR EXEMPT status must submit to the
understanding the IRS Form 1023. As discussed in previous sections, the IRS Form 1023 IRS a copy of the entity’s “organizing document.”
uses common, plain-English words and phrases, that can be misleading because they are
often actually technical terms that refer to legal and tax concepts. If your organization has legally changed its name or purpose, or otherwise amended its
original articles of incorporation, be sure to include copies of the amendment filings in the
For example, a “substantial contributor” in plain English would logically mean anyone application.
who contributes in a meaningful way to an organization. In the tax context, however,
“substantial contributor” is a technical term referring specifically to persons who contribute
more than $5,000 to an organization in a single fiscal year. TIP
Remember to be precise in using the organization’s legal name throughout the application,
To assist users in recognizing these technical terms, the IRS Form 1023 uses bold font to
even if the organization uses an acronym or nickname in marketing, fundraising, and
highlight the terms. The IRS provides a helpful glossary of the bolded terms in Appendix C
conversation. Using the wrong name could result in an incorrect determination letter.
on page 29 of the IRS Form 1023 instructions.
Excerpts from IRS Form 1023 and the glossary entry for the bolded term are below:
IRS REQUIRED LANGUAGE
Although the organizing document is primarily based on state law, the IRS requires certain
language to be included before the IRS will grant tax-exempt status to the applicant. Below
are four key areas in which the IRS has specific language requirements. (See Day Fifteen of
Toolkit Phase I)
1. Purpose – Part III, Line 1 of the Form 1023 explains the IRS requirement that an
exempt organization have a purpose statement that limits the organization to activities
that are recognized as exempt under the tax code. If your organization’s articles do not
already include this language, you should work with an attorney to amend them before
submitting the application. Note: the purpose statement in the articles should match
the purpose statement in the bylaws. To avoid contradictions, some organizations’
bylaws simply reference the purpose statement in the articles.
2. Dissolution – Part III, Line 2 will ask about your organization’s dissolution clause, to
ensure the assets of the organization are permanently dedicated to exempt purposes.
If your organization’s dissolution clause does not specifically indicate that assets go to
another charitable and exempt organization, work with an attorney to amend this prior
to submitting the IRS Form 1023.
3. Political Activity – The IRS also recommends that an exempt organization’s organizing
document specifically prohibit more than an insubstantial amount of political activity.
4. Private Benefit and Private Inurement – Finally, the organizing document should limit
the organization exclusively to its exempt purposes. Accordingly, including an express
prohibition on impermissible private benefit and private inurement is a best practice.
16 Legal Creation of a Faith-Based Nonprofit • P H A S E T W O
Directors & Officers Information
PART V ASK S A SERIES of questions about the relationships among the organization,
its directors, its vendors and contractors, and its employees.
These questions are used to help the IRS decide whether the organization meets the
Like people, most
requirement of operating primarily for exempt purposes and not for the private benefit of
an individual.
organizations
When answering these questions, the organization must demonstrate that no improper
private benefit is occurring and that safeguards are in place to prevent such improper private
benefit. For example, stating that the board is “independent,” meaning not conflicted by
the directors’ own business interests, and demonstrating that reasonable compensation is
set according to objective standards are two ways to indicate the organization is eligible for
exemption.
– even “exempt”
organizations –
Part V, Line 1a requires a list of current directors and officers.
If your organization has a board of directors that regularly meets, this task will be simple. If
your organization’s board does not meet regularly or has not yet appointed officers, take the
time to bring the board up to date. Check to make sure director and officer terms have not
expired.
are required to
submit an annual
If possible, use a business address for all directors. The IRS Form 1023 is a public
document, so using people’s home addresses might be intrusive and even dangerous in some
circumstances.
Family and Business Connections with the filing to the IRS.
Organization IRS FILINGS, PG 20
LINE 2 ASK S AB OUT THE family and business connections among the organization’s
directors and offers.
The question behind the question here is whether the organization is operating primarily
for exempt purposes, or whether private individuals are benefitting improperly from the
organization’s activities. For more information about private benefit, please review NLI
President and General Counsel John Peiffer II’s blog post, “Three Observations from
Recent Media Coverage of Liberty University,” and whitepaper series.
18 Legal Creation of a Faith-Based Nonprofit • P H A S E T W O Legal Creation of a Faith-Based Nonprofit • P H A S E T W O 19
Bylaws Grants to Individuals or Organizations
PART II, LINE 5 WILL ask if your organization has bylaws. As discussed in Toolkit Part BECAUSE INTERNAL REVENUE CODE SECTION 501(c)(3) prohibits exempt
I, having bylaws is a best practice under state and federal law. Additionally, for a faith-based organizations from operating for the benefit of a private individuals or organization, any
nonprofit, bylaws are an important tool through which to demonstrate the organization’s grants to individuals must be made on an objective basis and cannot be earmarked for any one
religious identity. person. For example, starting an organization called “Aid for Larry”, which fundraised to cover
Larry Lightfoot’s medical bills, would not be eligible for exemption under Section 501(c)(3).
The bylaws should include a signature page signed by a corporate officer indicating that the Many GoFundMe pages are examples of causes that benefit a specific individual, rather than a
bylaws have been approved by the board and as of what effective date. charitable class; thus, they would not be eligible for tax exemption.
If an exempt organization wishes to grant funds to other organizations, the exempt organization
must demonstrate that the funds will be used in furtherance of the exempt purposes. An exempt
Conflict of Interest Policy organization is not prohibited from granting funds to a commercial organization, but the
exempt organization must be very cautious. For example, an exempt organization that sought to
PART V, LINE 5 ASK S whether the organization has adopted a conflict of interest policy. promote interest in classical music conducted a number of programs to encourage listeners to
The IRS does not require a conflict of interest policy, but adopting one is a best practice tune in to a for-profit radio station. The IRS found that this promotion of the for-profit station
(and not adopting one is a red flag). Further, state laws also affect the manner in which was taking up too much of the exempt organization’s resources and was actually causing the
conflicts of interest are handled by the organization, and, therefore, should be taken into organization to operate for the benefit of a private entity. The organization was not eligible for
account in your conflict of interest policy. recognition as 501(c)(3) tax-exempt organization.
NLI has created template documents that can be tailored by an attorney to adopt a conflict
of interest policy for your organization. Appendix A of the IRS Form 1023 Instructions
also includes a boilerplate conflict of interest that can be tailored for your organization. IRS Filings
All directors, officers, and key employees should complete an annual statement disclosing LIK E PEOPLE, MOST ORGANIZ ATIONS – even “exempt” organizations – are required
any conflicts of interest and acknowledging that the individuals have reviewed and agreed to submit an annual filing to the IRS.
to the policy.
People and for-profit companies submit an annual income tax return, along with a payment of their
federal income tax.
International Activities Organizations that are exempt from federal income tax do not submit taxes, but they do submit an
annual report to the IRS through which the organization demonstrates that it still deserves to be
ORGANIZ ATIONS THAT M AY SEND GR ANTS outside the United States have recognized as exempt from federal income tax.
special legal responsibilities. Certain religious organizations, which are churches or are “integrated auxiliaries” of churches, are
From a tax perspective, all funds must be used for exempt purposes, not the benefit of exempt BOTH from paying taxes and from sending an annual report about their activities to the
private individuals. Organizations that send grant money cannot delegate this responsibility IRS. The reason these organizations are exempt both from taxes and from even just “checking
to the grant recipients; rather, the exempt organization must continue to oversee the use of in” with the IRS is that the IRS does not want to become entangled with religion because such
the funds to ensure no private individuals are benefiting improperly. involvement would put the agency at risk of violating the First Amendment to the Constitution.
Your accountant or attorney can help you determine whether your organization fits within one of
these special categories.
Parish churches and religious orders are often exempt both from paying taxes and from the annual
“check-in.” Lay-run apostolates are generally not exempt from reporting, even though they are
exempt from paying taxes.20 Legal Creation of a Faith-Based Nonprofit • P H A S E T W O Legal Creation of a Faith-Based Nonprofit • P H A S E T W O 21
Balance Sheet & Statement Assembling the Application
of Revenue and Expenses PUT THE ORGANIZ ATION’S NAME AND EIN on each page of your supplemental
response and identify the part and line number to which the information relates.
THE IR S INCLUDES A SECTION requesting a copy of the organization’s budget
and statement of revenue and expenses. The IRS requests this financial information to Combine your attachments in the following order:
determine whether the organization will in fact be operated as an exempt organization. 1. Organizing document (required).
Properly characterizing revenue and expenses in these statements is critical. An accountant
or attorney will help you ensure the organization is precise and accurate in developing these 2. Amendments to your organizing document in chronological order
reports. (required if applicable).
The financial information should be consistent with the information provided elsewhere in 3. Bylaws or other rules of operation and amendments (if adopted).
the application. For example, if the application states that the organization’s funding comes
4. Form 2848, Power of Attorney and Declaration of Representative (if applicable).
primarily from tickets to educational lectures, make sure the revenue statement properly
includes and identifies this. 5. Form 8821, Tax Information Authorization (if applicable).
6. Expedite request (optional).
Political Activity 7. IRS Form 1023 or Form 1023-EZ
8. Supplemental responses (if your response won’t fit in the provided text field) and any
UNDER STANDING THE B OUNDARIES OF PER MISSIBLE educational issue
additional information you want to provide to support your request (optional).
advocacy and impermissible political activity is important to protecting your organization’s
exempt status.
As the IRS states in Publication 557: “If any of the activities (whether or not substantial)
of your organization consist of participating in, or intervening in, any political campaign
on behalf of (or in opposition to) any candidate for public office, your organization won’t
qualify for tax-exempt status under section 501(c)(3). Such participation or intervention
includes the publishing or distributing of statements.”
HOMEWORK
Read the USCCB’s “Political
Activity and Lobby Guidelines
for Catholic Organizations.”22 Legal Creation of a Faith-Based Nonprofit • P H A S E T W O Legal Creation of a Faith-Based Nonprofit • P H A S E T W O 23
The Elements of an IRS The blue indicates the NLI qualified for exemption from federal income tax under Section
501(c)(3) of the Internal Revenue Code.
Determination Letter The pink refers to NLI’s responsibility to file annual reports to the IRS.
AF TER THE IRS Form 1023 is submitted, the IRS will review the application. The typical The green indicates which subcategory of 501(c)(3) organizations NLI falls into based on
processing and review time is about two to four weeks, for the IRS Form 1023-EZ, and six NLI’s sources of revenue.
months for the full IRS Form 1023.
The yellow is NLI’s Employer Identification Number, or EIN, which is similar to a social
The IRS may contact the organization with additional questions if any aspect of the security number. The EIN is referenced in all communications and reports to the IRS and is
application is unclear. also often used by state and local government agencies for reporting and taxing purposes.
If the application is successful, the organization will receive an “IRS Determination Letter” The orange indicates the effective date of NLI’s exemption. (See page 6 of IRS Publication
similar to the following. Keeping a copy of the determination letter in the organization’s 557 for more information about effective dates.) In this case, the effective date is the same
records is very important. date NLI was incorporated, in other words, NLI’s legal birthday. For most organizations,
the effective date should be the date of incorporation. Exceptions occur if an organization
is seeking exemption after being included on a group ruling or if an organization did not
receive recognition of exemption within 27 months of its incorporation. An attorney
can assist to make sure your organization receives the correct effective date. An incorrect
effective date might lead to extra taxes or penalties.
LEGAL DISCLAIMER
This resource contains general educational information related to legal concepts, but this
information does not constitute legal advice. Anyone seeking legal advice is strongly encouraged
to consult with a licensed attorney regarding any of the matters discussed herein. Although
licensed attorneys work with NLI, NLI is not a law firm and does not undertake legal
representation on behalf of any clients. Further, no licensed attorney working with or on behalf
of NLI agrees to undertake legal representation on behalf of any client unless the terms of such
representation are set forth in a separate, written representation agreement.You can also read
