KEY TAKEAWAYS:
- A 501(c)(3) nonprofit must serve a public good to qualify for IRS tax-exempt status.
- Applying involves specific IRS forms, financial records, and notarized documents.
- You can notarize documents online 24/7 with NotaryLive, no need to find a notary near you.
Audio Summary:
Thinking about starting a nonprofit?
You probably know about IRS tax-exempt organizations if you work with a nonprofit or charitable group.
You might also have questions about forms like the 501(c)(3), your exemption letter, or how to keep your tax-exempt status.
Taking care of this kind of paperwork can require notarizing documents. Whether using a traditional notary public or an online notary service. That’s where services like NotaryLive come in handy.
But first, let’s discuss what an IRS tax-exempt organization entails.
What is an IRS Tax Exempt Organization?
If you are unsure, an IRS tax-exempt organization is a nonprofit that meets specific requirements under federal law. This means that the organization is officially exempt from federal income tax.
The most common type is the 501(c)(3) organization.
This includes:
- Charities
- Religious Groups
- Educational Institutions
- Some foundations
What does this mean?
It means the IRS recognizes the organization as serving a public good, such as:
- Advancing science
- Education
- Literature
- or charity.
Importantly, the organization doesn’t operate to benefit private individuals. In return, the government doesn’t tax the organization’s income from its exempt activities. Therefore, donors may be eligible for tax deductions.
How do you qualify for a tax exemption?
To qualify under section 501, the organization must:
- Be organized mainly for one or more exempt purposes: charity, education, or religion and more.
- Not distribute earnings to private individuals or shareholders
- Avoid political campaigning and limit lobbying activity
- Provide the IRS with additional information about its activities and finances
The first step: Check your organization’s structure.
Most corporations, some unincorporated associations, and trusts can qualify (but not loose groups or regular businesses).
How can you apply?
1: Pick the correct IRS form.
- Form 1023 (for most 501(c)(3) organizations
- Form 1023-EZ (for smaller groups).
- Other organizations (like social clubs or business leagues) use Form 1024.
2: Collect documentation.
- Governing documents (like articles of incorporation). Which may need a wet signature, a notary stamp/notary seal. This is to prove their legitimacy if required by the state.
- Financial data/statements for prior tax years, budgets, and detailed activity descriptions.
- Tax-exempt form copies and prior tax returns, if available.
3: Submit your application online via Pay.gov.
4: Maintain compliance.
Please note: Many states require you to submit notarized copies of certain documents. You’ll need a notary public. Or, for convenience, you can use NotaryLive (an online notary service), to notarize documents online.
You’d never have to search “notary near me” or “notary services near me” again. Just connect virtually for a notary seal/notary stamp.
What happens after you apply?
If approved:
You’ll receive an exemption determination letter (sometimes called an IRS determination letter). This letter is the official proof that your organization is exempt from federal income taxes. You’ll also use the exemption determination letter for registration with the Secretary of State when:
- Requesting exemption from property taxes
- to open bank accounts
Keep it safe because it’s a core piece of your nonprofit organization’s credentials.
You can always verify status with the IRS tax-exempt organization search tool online for peace of mind. Or, to check the legitimacy of another group.
**The letter requires ongoing compliance with IRS rules to maintain the exemption.
Compliance essentials to keep in mind
- File your annual return
Most organizations that are exempt from taxes must file Form 990 or 990-EZ every tax year. This is, unless they’re a church or another narrow exception.
2. Limit private benefit
The IRS doesn’t exempt taxes on income or perks that benefit individuals.
3. Track unrelated business income
These organizations can sometimes owe tax from business activities unrelated to their exempt purpose. This requires separate reporting on Form 990-T.
4. Stay up to date
Update your governing documents if needed, and notarize documents as needed for legal filings.
Sign and Notarize Documents Online
When official documents must be verified, a notary public is often required.
Remote online notarization means you can now notarize online quickly and securely.
If you have forms that need signatures, you can do so with an electronic signature. NotaryLive provides an eSign product that allows you to eSign different types of documents whenever you want.
How much does a notary cost?
For individuals seeking a notarization, a session costs $25. For businesses seeking a higher volume of notarizations, please see our Pricing Page.
Frequently Asked Questions
Q: Are 501(c)(3) organizations tax exempt?
A: Yes. 501(c)(3) organizations are tax-exempt. Nonprofit organizations created for public-benefit purposes are granted exemption from federal income tax by the IRS.
Q: How to determine if a nonprofit is registered?
A: You can use the Tax Exempt Organization Search tools on the IRS site here.
