Tax-Exempt Status

Nonprofits are not required to apply for tax-exempt status from the Internal Revenue Service (IRS) to operate as nonprofits. However, nonprofits generally qualify for tax-exempt status, which allows an organization to avoid paying federal income taxes on the funds that they receive from donors, grants, and sales.

If you want to apply for tax-exempt status, use one of the application forms provided by the IRS! These forms include Form 1023, also known as "Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code" and Form 1024, which entitled "Application for Recognition of Exemption under Section 501(a)." Keep in mind, organizations other than nonprofits can apply for and operate under tax-exempt status, too! The instructions and requirements on these forms will give you an idea as to whether or not your LLC could qualify for tax-exemption.

These forms are available online at www.irs.gov. After filing, the IRS will send you a determination letter informing you if your organization has (or has not) met the requirements for a tax exemption under the section of 501(c) you applied under. You will choose the section of 501(c) to apply under based on what your organization does or who it serves.

If your organization gets approved for tax-exempt status, check to see if the status is legally effective as of the date of the formation of your organization. According to Nonprofit Law and Governance For Dummies, "if an organization has filed and paid taxes prior to receiving the recognition, the organization may file for a refund of any taxes paid for the period for which the exempt status is recognized."