Page 80 - Washington Nonprofit Handbook 2018 Edition

d. When to Seek 501(c)(3) Status

New organizations normally have up to 27 months to submit a Form 1023 or

a Form 1023EZ to the IRS. When a new organization files its Form 1023 or Form
1023EZ, and a favorable determination is issued by the IRS, the favorable
determination is retroactive to the date of incorporation. When a Form 1023 is filed
late and no exception applies, the IRS grants 501(c)(3) status effective beginning
with the date postmarked on the application envelope. When a Form 1023EZ is
filed late and no exception applies, the IRS grants 501(c)(3) status effective as of the
date the Form 1023EZ is submitted online at www.pay.gov.

TIP:

New organizations should begin filing their Form 990 Return of Organization Exempt From
Income Tax (annual tax return) even if the organization has not filed their Form 1023 or
Form 1023EZ or received their approval of their tax-exemption application. See Chapter 35
for more information on the Form 990. Note that if an organization does not file the Form
990 for three consecutive years, their 501(c)(3) tax-exempt status will be automatically
revoked and the organization will have to refile a Form 1023 to reinstate the organiztation’s
tax-exemption.

e. Considerations for Organizations Not Required to File for 501(c)(3)
Status

Even though churches, organizations created before October 1969, and
publicly supported organizations whose gross receipts average less than $5,000 per
year are not required to file, there are benefits to filing:

y Section 508 of the Code provides deductibility of contributions for
churches and small organizations, but the burden of proof for tax
deductibility is on the donor. A church or small organization might
choose to apply for 501(c)(3) recognition to save donors inconvenience
during an audit.

y Almost every grantmaking agency, public or private, requires a
501(c)(3) determination letter from grant applicants regardless of
whether the nonprofit is a church or a small organization.

y Other state and federal agencies, such as the Postal Service or the
Washington Gambling Commission, may require proof of exempt

WASHINGTON NONPROFIT HANDBOOK -69- 2018