What is 501(c)(3) status?

“501(c)(3)” refers to Section 501(c)(3) of the Internal Revenue Code, which is the statute that governs the United States’ tax system at the federal level.

Nonprofits that are Section 501(c)(3) organizations are commonly referred to as “charitable organizations” or “charities” – they must be organized and operated exclusively for one or more of the exempt purposes listed in Section 501(c)(3) of the Internal Revenue Code: charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.

What does the term charitable mean? The IRS explains that the term “charitable” is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.

What are the eligibility requirements for 501(c)(3) status?

• 501(c)(3) organizations must be organized and operated exclusively for one or more of the lawful exempt purposes listed in Section 501(c)(3) of the Internal Revenue Code: charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. The purposes and activities of a nonprofit also have to be legal and cannot violate fundamental public policy. The term “charitable” is used in its generally accepted legal sense and includes:
  • relief of the poor, the distressed, or the underprivileged;
  • advancement of religion;
  • advancement of education or science;
  • erecting or maintaining public buildings, monuments, or works;
  • lessening the burdens of government;
  • lessening neighborhood tensions;
  • eliminating prejudice and discrimination;
  • defending human and civil rights secured by law; and
  • combating community deterioration and juvenile delinquency.

  To be organized exclusively for exempt purposes listed in Section 501(c)(3), a nonprofit’s formation document must limit the organization’s purposes to exempt purposes in Section 501(c)(3) and must not expressly empower the organization to engage in activities, other than as an insubstantial part of its activities, that are not in furtherance of one or more of those purposes. Additionally, the nonprofit’s assets must be permanently dedicated to an exempt purpose, meaning that if an organization dissolves, its assets must be distributed for an exempt purpose, to the federal government, or to a state or local government for a public purpose. In Pennsylvania, nonprofits may not rely on state law to meet these requirements and their formation document must include specific language to meet these requirements.

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  If you just complete and file the Department of State forms, without including any additional language, you would be missing out on some important details and could make some costly mistakes. If you plan on applying for 501(c)(3) status for your organization, you’ll want to include an Attachment to the Articles of Incorporation with the incorporation filing to make sure you have all of the right IRS language in your organization’s Articles of Incorporation. You may also want to take steps to protect the stability of the organization and your role as a founder (see note about preventing takeovers under Step #2 above), and you should always, always, always talk through and review your plans and draft documents with legal counsel before filing.

  An organization is operated exclusively for exempt purposes listed in Section 501(c)(3) only if it engages primarily in activities that accomplish exempt purposes specified in Section 501(c)(3). If more than an insubstantial part of an organization’s activities does not further an exempt purpose, the organization is not operated exclusively for one or more exempt purposes. For example, an organization must not operate for the primary purpose of conducting a trade or business that is not related to its exempt purpose.

• 501(c)(3) organizations must not be organized or operated for the benefit of any private interests. The revenue of 501(c)(3) organizations may not “inure to” (in other words, unlawfully benefit) any private individual (like the organization’s founder or a specific charitable beneficiary). Organizations that engage in private inurement transactions that excessively benefit anyone having substantial influence over the organization subject the people who benefitted financially from the transactions (and the organization’s managers) to excise taxes. Private benefit can also jeopardize an organization’s 501(c)(3) status.
• Influencing legislation cannot be a substantial part of a 501(c)(3) organization’s activities. Note this is not a prohibition on lobbying, as Section 501(c)(3) organizations may engage in legislative activities. See Bolder Advocacy as a resource for more details about lobbying.
• Section 501(c)(3) organizations may not participate in any campaign activity for (or against) any political candidates (federal, state, and local).

See IRS Publication 4220 with general guidelines for organizations seeking 501(c)(3) status. For more compliance details, see IRS Publication 557; see also the IRS website for a 10-part Stay Exempt video workshop series on the application process and the rules that apply to 501(c)(3) tax-exempt organizations.

What are the benefits of 501(c)(3) Status?

501(c)(3) status is a federal tax status with significant benefits:

• Exemption from Federal Corporate Income Tax and Certain Employment Taxes – Most organizations that are recognized by the IRS as 501(c)(3) organizations are exempt from federal corporate income tax on the income they generate that is substantially related to their tax-exempt purposes, and are exempt from certain federal employment taxes.
  

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  • 501(c)(3) organizations are not exempt from other types of taxes, such as corporate income tax on income that is generated from activities unrelated to their tax-exempt purposes, payroll taxes, lobbying taxes, and other federal taxes, plus any other types of taxes – such as sales and use taxes, or real estate property taxes – if exemptions from those taxes have not been separately obtained.
  • In Pennsylvania, 501(c)(3) organizations have to separately apply for and receive exemptions from sales and use taxes and real estate property taxes in order to be exempt.

• Donors Incentivized to Give – Donors who itemize their income tax deductions can make contributions to 501(c)(3) organizations and claim tax deductions for those donations. Also, the public generally perceives 501(c)(3) organizations as more legitimate, and donors are generally more likely to give to 501(c)(3) organizations that are listed on the IRS’s Select Check website – and that are evaluated on charity rating sites like Charity Navigator, GuideStar, BBB.org, and Give.org.
• Grant Eligibility – Most government entities and private foundations will only award funding to 501(c)(3) organizations.
• Opportunities for other exemptions – Having 501(c)(3) status provides opportunities to apply for other tax exemptions at the state and local level, such as taxes on hotel room rentals, sales and use taxes, and real estate property taxes.
• Discounted postage rates – Organizations can learn more about discounted postage rates for nonprofit mail on the USPS website (see here for FAQs about Nonprofit Mail), and apply for these discounted postage rates using the United States Postal Service form, PS Form 3624.
• Discounts on good and services – Some vendors will discount their services and/or products for nonprofits that have 501(c)(3) status.
• Eligibility for tax-exempt bonds – 501(c)(3) organizations are eligible to apply for tax-exempt financing to make capital improvements.

How are nonprofits recognized as 501(c)(3) organizations?

With some exceptions, in order to be recognized as a 501(c)(3) organization, a nonprofit organization must obtain a Determination Letter from the Internal Revenue Service (“IRS”) recognizing the organization as exempt from federal income tax under Section 501(c)(3).

The IRS is the agency that enforces federal tax laws, and it is authorized to recognize qualifying nonprofits as 501(c)(3) tax-exempt organizations. The IRS will issue Letter 947 if the organization is a 501(c)(3) public charity, or a Letter 1076 if the organization is classified as a 501(c)(3) private foundation or 501(c)(3) private operating foundation. See below for the distinction between the two.

The IRS Determination Letter is an important document that you should keep in your nonprofit organization’s permanent records; replacement letters can be requested, but this is not a letter that your organization wants to lose.

A lot of people learn the hard way. To avoid mistakes, consult with a lawyer who regularly represents nonprofits to understand whether 501(c)(3) status is right for your organization and how to properly complete the IRS forms.

Does my nonprofit have to apply to the IRS to be considered a 501(c)(3) organization?

Generally, yes – with some exceptions, in order to be recognized as a 501(c)(3) organization, a nonprofit organization must obtain a Determination Letter from the Internal Revenue Service (“IRS”) recognizing the organization as exempt from federal income tax under Section 501(c)(3).

The main exceptions are as follows (there are some other exceptions provided pursuant to regulations):

• Organizations that are not private foundations and that do not have gross receipts in each taxable year that normally exceed $5,000 – in other words, the tiniest of publicly funded charities.
• Churches, their integrated auxiliaries, and conventions or associations of churches (the term “churches” includes mosques, synagogues, temples, and similar types of organizations).
  • The characteristics generally attributed to these religious organizations include a congregation or other religious membership group that meets regularly for religious worship as well as other criteria, including but not limited to the following: a distinct legal existence; recognized creed and form of worship; a definite and distinct ecclesiastical government; a formal code of doctrine and discipline; a distinct religious history; a membership not associated with any other church or denomination; ordained ministers ministering to the congregation; ordained ministers selected after completing prescribed courses of study; a literature of its own; established places of worship; regular congregations; regular religious services; Sunday schools for the religious instruction of the young; and schools for the preparation of ministers.
  • Even though these religious organizations are exempt from the IRS application requirement, some still choose to voluntarily file exemption applications with the IRS because IRS recognition provides assurance for these organizations’ leaders, members, and contributors that the organization is a 501(c)(3) that qualifies for related tax benefits.
  • Note that other types of religious organizations (i.e., organizations like mission organizations, speakers’ organizations, nondenominational ministries, ecumenical organizations, or faith-based social agencies) are not exempt from the IRS application requirement and they must therefore apply for exemption from the IRS in order to obtain 501(c)(3) status. See IRS Publication 1828, Tax Guide for Churches & Religious Organizations, for more details.

Even though some organizations are not required to file for recognition for 501(c)(3) status, they may want to apply to receive public recognition of their 501(c)(3) status and to have the assurance of their tax classification. To understand the options and to get more information to help you decide whether applying to the IRS for 501(c)(3) status is the right move for your organization, consult with a lawyer who regularly represents nonprofit organizations.

Should my nonprofit apply as a public charity or as a private foundation?

If your organization qualifies, it will most likely want to apply to the IRS as a public charity, as opposed to a private foundation.

The IRS further classifies every 501(c)(3) nonprofit as either a public charity or a private foundation. Understanding the distinction is important because different tax rules apply depending on a nonprofit’s 501(c)(3) sub-classification.

The rules applicable to private foundations are stricter and there are generally fewer advantages to being a private foundation, so most 501(c)(3) organizations tend to prefer to be further classified as public charities rather than private foundations if they are eligible to be sub-classified as public charities.

For example, the tax deductibility limits for contributions made to private foundations are less favorable than they are for public charities; private foundations are subject to certain taxes that are not imposed on public charities; and private foundations are prohibited from engaging in lobbying activities whereas public charities are only subject to certain limitations and reporting conditions.

For more information about the special tax rules that apply to private foundations, see IRS Publication 4221-PF for a compliance guide for 501(c)(3) private foundations, and the IRS website for the Life Cycle of a Private Foundation.

See IRS Publication 526 for more information on deductibility of charitable contributions.

To be sure that you are correctly completing your organization’s application for 501(c)(3) – and making sure your 501(c)(3) organization is properly sub-classified by the IRS – consult with a lawyer who regularly represents nonprofit organizations.

If you get this classification wrong, reclassifying your 501(c)(3) organization can cost your organization time and money.

How do I know if my nonprofit is a public charity or a private foundation?

A lawyer who regularly represents nonprofit organizations on tax matters should advise on the proper designation for your organization, but it’s helpful to know that under Section 508(b) of the Internal Revenue Code (the “Code”), every organization is automatically classified as a private foundation by default, unless it meets one of the designated exceptions listed in the Code.

Organizations are not private foundations if they are:

• Churches, integrated auxiliaries of churches, and conventions or associations of churches (the term “churches” includes mosques, synagogues, temples, and similar types of organizations);
• Educational organizations that normally maintain a regular faculty and curriculum and normally have a regularly enrolled body of pupils or students in attendance at the place where their educational activities are regularly carried on;
• Organizations that provide medical or hospital care (including the provision of medical education and in certain cases, medical research);
• Organizations that receive a substantial part of their support in the form of contributions from publicly supported organizations, governmental units, and/or from the general public;
• Organizations that normally receive not more than one-third of their support from gross investment income, and more than one-third of their support from contributions, membership fees, and gross receipts from activities related to their exempt functions;
• Organizations that support other public charities;
• Certain governmental units;
• Certain agricultural research organizations; or
• Organizations organized and operated exclusively for testing for public safety.

For some of these organizations, the distinction between a classification as a public charity or a private foundation is the organization’s source of financial support. Generally, a 501(c)(3) public charity has a broad base of public support and receives contributions from many individual donors and other sources like foundations, whereas a 501(c)(3) private foundation has much more limited sources of support, and typically receives contributions from only a few individuals or companies.

You may need your accountant to run a public support test calculation to determine if your nonprofit meet the tests to become a 501(c)(3) public charity. Be sure to consult about the requirements of maintaining public charity status with legal counsel who has experience representing nonprofit organizations with tax matters, too, especially if your organization is relying on public support test calculations for its classification as a public charity.

If your nonprofit requests public charity classification based on the financial support it receives, your nonprofit must continue to meet this test on an on-going basis if this is the only basis for its public charity classification. Beginning with your organization’s sixth tax year, your nonprofit must run calculations each year based on a rolling 5-year average, and if your organization does not meet its public support test, it could be reclassified as a private foundation. To avoid unexpectedly becoming a private foundation – by failing to meet the public support test – your organization should keep careful track of the sources and amounts of public support received throughout the year, so that it will have the information it needs to run the calculations required on Schedule A, which must be filed with your nonprofit’s IRS Form 990 or IRS Form 990-EZ. If your nonprofit does not meet the one-third public support test, it may be able to qualify as a public charity based on a facts-and-circumstances test that looks to whether your nonprofit received at least 10% support from public sources. See Publication 557 for more details.

See IRS Publication 4221-PC or IRS Publication 4221-PF for more compliance information for public charities and private foundations.

When should my organization apply for 501(c)(3) status?

Ideally, your organization should apply for 501(c)(3) status before the end of the 27 month after its formation so that the exemption will be effective as of the date of your organization’s formation. Consult with a lawyer who regularly represents nonprofit organizations to understand how to communicate with donors while your application is pending and about the effective date of your exemption if you missed the 27-month deadline, or if you are not sure that your organization will qualify for 501(c)(3) status. See our Donor Acknowledgement Letters for template communications used to acknowledge contributions while exempt recognition is pending and after a 501(c)(3) Determination Letter is received: Donor Acknowledgement Letter – Pre-501(c)(3) Status and Donor Acknowledgement Letter – Post-501(c)(3) Status

If your organization is not a private foundation and its annual gross receipts are normally less than $5,000, but your organization’s annual gross receipts exceed this threshold after this 27-month period, your organization generally must file an exemption application within 90 days of the end of the tax year in which it exceeds this threshold in order for your nonprofit to receive recognition of its exemption retroactively. If the $5K annual gross receipts threshold is exceeded within the 27-month period, your nonprofit’s exemption application generally must be filed before the end of the 27th month after its formation date in order for the exemption to be effective as of the date of your organization’s formation.

How does my organization apply for 501(c)(3) status?

With some exceptions, organizations applying for 501(c)(3) federal tax-exempt status must submit their applications online (paper form applications are no longer accepted), using either the short form (IRS Form 1023-EZ) or the long form (IRS Form 1023):

THE SHORT FORM: Many small organizations applying for recognition of 501(c)(3) status may use the IRS Form 1023-EZ, which is the streamlined application for 501(c)(3) status. For more context about the IRS Form 1023-EZ, see the IRS website. Complete the IRS Eligibility Worksheet (it starts on page 13 of the IRS Form 1023-EZ instructions or you can download this free fillable PDF copy of the IRS Eligibility Worksheet) to determine if your organization is eligible to file the IRS Form 1023-EZ, and confer with legal counsel that regularly represents nonprofit organizations if you have any questions about any questions on the worksheet. Small organizations are organizations that expect to have annual gross receipts of not more than $50K per year in the next three years, and assets the fair market value of which are not more than $250K. The filing fee for short-form application is $275. The turnaround time is generally about 2-4 months. You can check the IRS website here to see how quickly the IRS is currently reviewing applications. It used to take about two weeks for the IRS to issue determination letters for the short-form applications, but the IRS has been experiencing delays due to the COVID-19 pandemic; based on how well the agency is funded and managed, the turnaround time for applications can vary widely.

If you are completing the application on your own, without an attorney, you’ll need to set up an account with the IRS on Pay.gov before filing the IRS Form 1023-EZ application for your organization. Use this link on the IRS website to access the IRS Form 1023-EZ streamlined application for 501(c)(3) status.

The IRS Form 1023-EZ application itself becomes a public document, which anyone can request using IRS Form 4506-B. Your organization is also required to keep a copy of its application in its records and to disclose it upon request.

Your organization should confer with legal counsel before filing this application. Organizations may find it helpful to have all the responses worked out on paper before filing the online form. REMEMBER – your organization must file this application electronically on pay.gov. Many organizations ask legal counsel to review their draft responses before filing the IRS Form 1023-EZ.

When applying, you will need to enter the National Taxonomy of Exempt Entities (NTEE) code that best describes your organization. See here for the List of NTEE Codes (the list starts on page 21 of the IRS Form 1023-EZ instructions). An NTEE code is a three-character series of letters and numbers that generally summarize an organization’s purpose. These codes are developed by the National Center for Charitable Statistics (NCCS) with the Urban Institute. For more on NTEE Codes, see the NCCS’s webpage on NTEE Codes. Having a nonprofit lawyer review your choice of NTEE Code is a good idea, as this is a common way for organizations to get themselves misclassified.

THE LONG FORM: Organizations applying for 501(c)(3) status that are not eligible to use the IRS Form 1023-EZ must use the long-form IRS Form 1023. Organizations that expect to have annual gross receipts of more than $50K per year in the next three years, or assets the fair market value of which are more than $250K are not eligible to file the short-form IRS Form 1023-EZ, and they must file the long-form IRS Form 1023. Many other types of organizations are also required to file the long-form IRS Form 1023. Complete the IRS Eligibility Worksheet (it starts on page 13 of the IRS Form 1023-EZ instructions or you can download this free fillable PDF copy of the IRS Eligibility Worksheet) to determine if your organization is eligible to file the IRS Form 1023-EZ (or if it must file the long-form IRS Form 1023 if it is applying for 501(c)(3) status), and confer with legal counsel that regularly represents nonprofit organizations if you have any questions about any questions on the worksheet.

Organizations eligible to file the IRS Form 1023-EZ may still opt to use the long-form IRS Form 1023, and it may be beneficial to file the long form in some circumstances. For example, because there is no narrative section on the IRS Form 1023-EZ, some organizations may prefer to file the IRS Form 1023 so that they can complete the narrative section and obtain a clear determination from the IRS that their proposed activities qualify for 501(c)(3) status. The long-form IRS Form 1023 is also much more of an educational tool, helping applicants to understand the rules governing 501(c)(3) organizations. For more about these rules, see IRS Publication 557.

The filing fee for the long-form IRS Form 1023 application is $600. The turnaround time is generally about 6-7 months. You can check the IRS website here to see how quickly the IRS is currently reviewing applications.

You can check the IRS website here to see how quickly the IRS is currently reviewing applications. The turnaround time used to be about 2 months, but the IRS has been experiencing delays since the COVID-19 outbreak. (Take heart: years ago, it used to take as long as 9 to 18 months to hear back from the IRS, and once applications are assigned to agents, the review process goes fairly quickly.) The quality of applications typically effects IRS turnaround times, and high-quality professionally prepared applications generally sail through with fewer follow-up inquiries from the reviewing agents.

You’ll need to set up an account with the IRS to file the application for your organization. If you are completing the application on your own, without an attorney, you’ll need to set up an account with the IRS on Pay.gov before filing the IRS Form 1023 application for your organization.

Use this link on the IRS website to access the IRS Form 1023 application for 501(c)(3) status.

The IRS Form 1023 application itself becomes a public document, which anyone can request using IRS Form 4506-B.

Your organization is also required to keep a copy of its application in its records and to disclose it upon request.

Your organization should confer with legal counsel before filing this application and should engage legal counsel experienced in representing nonprofit organizations to complete its 501(c)(3) application, or to review your draft 501(c)(3) application before filing.

Can a nonprofit solicit contributions and conduct activities while its IRS application is pending?

Yes, while a nonprofit’s application is being prepared and its application is being processed by the IRS, a nonprofit may operate as a tax-exempt organization and may solicit charitable contributions. Nonprofit organizations will just want to be careful that they are not putting off their compliance obligations and that they are still timely making all filings that are required.

Even though they may not have obtained recognition of their 501(c)(3) status yet, nonprofits still have filing obligations. For example, with the IRS, most organizations are still required to file an annual notice or information return (either a notice using IRS Form 990-N, or annual return IRS Form 990-EZ, IRS Form 990, or IRS Form 990-PF) while their 501(c)(3) applications are pending. Also, if your nonprofit has unrelated taxable business income (“UBTI”) of more than $1,000, it must file an IRS Form 990-T. See IRS Publication 4221-PC or IRS Publication 4221-PF for more information.

A nonprofit’s exempt status can be automatically revoked even while its application is pending (crazy, we know), if it has not filed a required return or notice with the IRS for three consecutive tax periods. To avoid this situation, see the IRS website for special instructions on how to file tax returns while an organization’s exemption application is pending. (For more information on reinstating your nonprofit’s tax-exempt status, see this page on the IRS website.)

While your organization’s 501(c)(3) application is pending, donors will have no assurance from the IRS that contributions to your organization are tax-deductible for federal income tax purposes until your nonprofit’s 501(c)(3) application is approved. That said, contributions made while your nonprofit’s application is pending could qualify if the application is approved if the exempt status is recognized retroactively. On the other hand, if 501(c)(3) status is denied by the IRS, contributions would not qualify for federal charitable income tax deductions, and your nonprofit would be liable for filing federal income tax returns (most likely as a taxable nonprofit corporation) unless the nonprofit’s income is otherwise excluded from federal taxation. Consult with a lawyer who regularly represents nonprofit organizations to understand how to communicate with donors while your application is pending. For more information on charitable disclosure requirements, see this page on the IRS website and IRS Publication 1771.

All other applicable rules and regulations – including the state law rules regulating the solicitation of charitable contributions – remain in effect while a nonprofit’s 501(c)(3) application is pending, so you will want to look into those filing thresholds and requirements in order to keep your nonprofit in compliance. Confer with legal counsel about applicable laws and your organization’s obligations.

For education and guidance from the IRS on 501(c)(3) organizations, see this page on the IRS website.

RECOGNIZING DONORS’ CONTRIBUTIONS:

For a template letter for recognizing charitable contributions after your organization receives its IRS Determination Letter is pending, check out our Donor Acknowledgement Letter – Post-501(c)(3) Status. For template correspondence to use while your organization’s exemption application is still pending review by the IRS, check out our Donor Acknowledgement Letter – Pre-501(c)(3) Status.

How do I check on the status of my nonprofit’s application for tax-exempt status?

If you want to know when you will hear back from the IRS about your exemption application, the IRS provides updates on the applications it is currently reviewing (based on dates submitted) on this page on its website.

What if the IRS has questions about my organization’s 501(c)(3) application?

It is not unusual for an IRS tax specialist reviewing a nonprofit’s 501(c)(3) application to request additional information in writing. If the IRS writes to you with any questions about your organization’s 501(c)(3) application, consult with an attorney who has experience representing nonprofit organizations with tax matters before responding to the IRS, and reply promptly to the IRS. If you need more time to reply, ask the IRS for an extension before the deadline passes, by calling the number on the letter you received from the IRS. IRS agents in the EO Division of the IRS are generally very helpful and kind, and they tend to understand if you need more time and need to confer with your nonprofit’s attorney.

How do I verify that my nonprofit’s IRS Determination Letter and the IRS database is correct?

Unless your nonprofit is one of the organization types that is not required to apply for 501(c)(3) status, your organization will be considered to be a 501(c)(3) organization by the IRS when the IRS issues the organization an IRS Determination Letter.

The IRS will send the same Determination Letter to your nonprofit regardless of the type of application form your organization used to apply for 501(c)(3) status (i.e., your organization’s Determination Letter is not affected by whether it filed an IRS Form 1023 or an IRS Form 1023-EZ application). The IRS will issue Letter 947 if your organization is a 501(c)(3) public charity, or a Letter 1076 if your organization is classified as a 501(c)(3) private foundation or 501(c)(3) private operating foundation. See above for the distinction between public charities and private foundations.

The effective date of your organization’s 501(c)(3) status is printed in the upper right corner of the IRS Determination Letter. If your organization submitted its IRS Form 1023-EZ or IRS Form 1023 application within 27 months of its date of incorporation, you will want to be sure that the IRS exemption effective date matches the date on your organization’s formation document. You will also want to be sure that all the other details on your organization’s IRS Determination Letter (name, address, fiscal year end, etc.) are correct. These details matter and you should check them over and take the time, too, to review the IRS databases, to be sure that your organization is properly listed in the Business Master File and on the IRS List of Tax-Exemption Organizations (which includes Publication 78 data). Doing this promptly upon receipt of the letter makes changes a bit easier to make if the IRS got anything wrong on the letter.

Will my nonprofit’s 501(c)(3) exemption expire, or does it need to be renewed?

501(c)(3) status must be maintained by timely filing annual returns with the IRS and by staying in compliance with the federal tax rules that apply to 501(c)(3) organizations; however, unlike some state tax exemptions, 501(c)(3) status never expires and it need not be renewed. It is only through the IRS revocation process that organizations can lose their 501(c)(3) status. Most 501(c)(3) organizations lose their tax-exempt status because of a failure to file annual returns for three consecutive years. See IRS Publication 557 and the IRS website for a 10-part Stay Exempt video workshop series for the rules that apply to 501(c)(3) tax-exempt organizations. (For more information on reinstating your nonprofit’s tax-exempt status, see this page on the IRS website.)

What are the alternatives to 501(c)(3) status?

As an alternative to applying for exemption, your organization may obtain some of the benefits of 501(c)(3) status by affiliating with a 501(c)(3) organization that will agree to serve as your organization’s fiscal sponsor. Any fiscal sponsor that your nonprofit works with must be given full control and authority over any funds received on your organization’s behalf if your nonprofit is not a 501(c)(3) organization. Be sure to consult about the options of setting up fiscal sponsorship arrangements with legal counsel that has a tax-exempt organization law background, and experience setting up and reviewing these fiscal sponsorship arrangements, as they can be complicated and there are traps for the unwary.