Applying for Section 501(c)(3) status course - video transcript

The following is for use by assistive readers and users who prefer a text version of the Applying for Section 501(c)(3) status course.

Page 1 – Welcome to the applying for Applying for Section 501 (c) (3) status overview course

This course is presented by the Exempt Organizations office of the IRS.

Page 2 – Introduction

Leagle: I’m Leagle, the EO Eagle, and I’ll guide you through the courses here at Stay Exempt. During this course, you’ll engage in several knowledge checks. These questions will reinforce your learning experience.

Page 3 – Objectives

Leagle: In this course I’ll talk about the lifecycle of a typical tax-exempt organization, and you’ll become familiar with the benefits and responsibilities associated with achieving exempt status. You’ll learn the basics of 501(c)(3) eligibility, the difference between a private foundation and a public charity, and how to apply for tax-exempt status. Finally, we’ll talk about the rules for running an organization while under consideration for tax-exempt status.

Let’s start with the basics.

Page 4 – What is tax-exempt status?

Richard: Hi, I’m Richard. I’ve had a passion for helping animals since I was a child. I’m considering starting an animal rescue to fulfill my life’s dream of preventing cruelty to animals. I’ve heard it could be advantageous to obtain tax-exempt status but I am not sure what all that entails. Can you help me?

Leagle: Well it’s a good thing you came to the Stay Exempt IRS.gov website. I’ll be happy to help you through the process of understanding tax-exempt status. Soon, you’ll understand what it takes to become a tax-exempt organization and maintain the status of your organization. First, you should know that the term 501(c)(3) refers to section 501(c)(3) of the Internal Revenue Code – where the rules and regulations governing exempt organizations are found. Tax-exempt organizations are commonly referred to as 501(c)(3)s. 501(c)(3) includes both public charities and private foundations. We’ll discuss the differences later.

Richard: Wow. That’s good to know. So, how do I get started?

Leagle: Well it’s a good thing you came to Stay Exempt IRS.gov website. I’ll be happy to help you through the process of understanding 501(c)(3) tax-exempt status. By the end of this experience, you’ll understand what it takes to become an organization with 501(c)(3) exempt status.

Page 5 – What is Section 501(c)(3) status?

Leagle: Section 501(c)(3) is one of several parts of the Internal Revenue code providing tax exempt status to qualifying organizations. 501 (c) (3) includes both public charities and private organizations. We’ll discuss the differences later but in this course, well mostly be talking about public charities

Richard: Wow. That’s good to know. So, how do I get started?

Leagle: Well Richard, being a tax-exempt organization is not a static thing. It’s a process with a whole lifecycle to it. Let’s talk about the lifecycle, and once you understand the process then we can talk about the benefits and responsibilities. After that, I can walk you through the first steps of applying for tax-exempt status and point you to some great resources for operating as a tax-exempt organization.

Page 6 – Lifecycle of a tax-exempt organization

Richard: You mentioned that there is a whole process to becoming recognized as exempt under Section 501(c)(3). What’s that like?

Leagle: There are five stages in the lifecycle of a public charity They include:

• Starting out
• Applying for Exemption
• Required Filings
• Ongoing Compliance, and
• Significant Events

The first two steps, starting out and applying for exemption, are unique because you should only do them once for any single organization. For the purposes of this course, we’re only going to concentrate on creating and maintaining one organization at a time.

What’s different about the other three stages is that a single organization has to deal with each of those issues multiple times. Some required filings are annual, for example. We’ll talk about each of these stages in a little more detail.

Before we move on, it’s important that you know there’s a lot more information about the lifecycle on IRS.gov charities and nonprofits webpage. Follow the link below to see that information. When you are ready to learn more about the first stage select the starting out button.

Page 7 – Lifecycle – Starting out

Richard – So if I’m starting out, what’s the first thing I should do?

Leagle: First, you’ll need to create an organization under your state’s law. Your state will have rules that would likely make your animal rescue a non-profit, which is a state level classification. When you’re creating your organization, you’ll need to create organizing documents based on the requirements of your state. You’ll need these if you apply for 501(c)(3) tax exemption.

To apply for Federal tax exemption, you’ll need to acquire an employer identification number, or EIN, which is issued by the IRS.

Richard: But I don’t have any employees, so I’m not an employer.

Leagle: Even so, you still need an EIN. Your EIN is similar to your personal Social Security number, only it’s for your business. It identifies you to the IRS. If you decide on applying you’ll probably need more information on the EIN step. Here’s a link.

Next is applying for Tax Exemption, when your ready select the applying button.

Page 8 – Lifecycle – Applying for exemption

Richard: So, you said the next step was applying?

Leagle: That’s right. For this stage, you’ll need to fill out Form 1023. That’s a big step. Of course, there are resources to help you on the IRS website. We’ll be covering this step more later in this training - once you decide to apply for tax-exempt status.

Richard: That sounds great. What’s next?

Leagle: Now let’s talk about your Required Filings. Select the required filings button to continue.

Page 9 – Lifecycle – Required Filings

Richard: So, you said that this step is different because these are things I’ll have to do regularly. What are the requirements?

Leagle: Once the IRS has granted your organization tax-exempt status, it’s important that you meet the mandatory annual filing requirements. Most 501(c)(3) organizations need to file annual exempt-organization returns, and some organizations may need to file unrelated business income tax filings, and other returns and reports you’ll learn about here at Stay Exempt. Once you have your tax-exempt status, you should look into some of the other courses here at Stay Exempt, like Required disclosures and Unrelated business income and courses on the annual form you’ll submit, Form 990.

The next stage is ongoing compliance. Select the ongoing compliance button for more information.

Page 10 – Lifecycle – Ongoing compliance

Richard: All right, so I know I have annual filing requirements. What’s next?

Leagle: Well, it’s helpful if you understand how an organization can avoid jeopardizing its tax-exempt status. Employment taxes, public disclosure requirements and other ongoing compliance issues are also important.

There are other courses here at Stay Exempt that can help you with that. There’s the Maintaining tax-exempt status course, one on Required disclosures, which tells you what information the public is entitled to see, and an Employment issues course. You should go through those when you’ve applied for tax-exempt status. There's one last stage, select the significant events button for more information.

Page 11– Lifecycle – Significant events

Richard: So the last stage is significant events. What kinds of significant events are there?

Leagle: These significant events all have to do with your tax-exempt status. The events include, but aren’t limited to

• Audits
• Private letter rulings and
• Termination proceedings

For more information on this stage, go to the IRS website.

Now that you’ve learned about the stages in the lifecycle, let’s try an exercise. Select the knowledge check button to continue.

Page 12 – Knowledge check

Leagle: Let’s see how well you remember the lifecycle. Select the appropriate answer then select the submit button to check your answer. Which of the following event is listed too early. Choose only one answer.

1. Applying to IRS – Form 1023
2. Starting out – Organizing Documents
3. Starting out – Employee Identification Number (EIN)
4. Required Filings – Annual Returns
5. Required Filings – Unrelated Business Income
6. Ongoing Compliance – Form 990
7. Significant Events – Private Letter Rulings
8. Significant Events - Termination proceedings

If your answer was “A) Applying to IRS – Form 1023, you were correct.

Before applying, you need to create your organizing documents and obtain an EIN. The “Applying to IRS – Form 1023” step should come after you create organizing documents and obtain an EIN.

Page 13 – Progress check

Leagle: Great job! You’ve completed the lifecycle section of this course. Next, we’ll talk more with Richard about why tax-exempt status might be right for him, and what responsibilities he’ll have if he is granted tax-exempt status for his organization. Select the continue button to move forward.

Page 14 – Benefits and responsibilities

Richard: All right, so I’m just starting out. What steps should I take before applying?

Leagle: Before you can be sure that 501(c)(3) status is right for you, you’ll need to understand some of the benefits and responsibilities that come with tax-exemption, the steps required to become tax-exempt, and the rules your organization must follow after you apply. As your animal rescue grows, your exempt status responsibilities will grow, too.

First things first, you need to learn about 501(c)(3) status so you can make an informed decision - and then apply. Next, we’ll do an exercise together to separate the benefits from the responsibilities of 501(c)(3) status. Select the activities button to try it out.

Page 15 – Activity #1: Benefits and responsibilities

Leagle: So why don’t you try to guess what the benefits of 501(c)(3) tax exempt status are? Look through the list and select all the options that seems like benefits then select the submit button to check your answers.

• Exemption from federal income tax
• Tax-deductible contributions
• Reduced postal rates
• Recordkeeping
• Annual Filings

You were correct if you chose:

• Exemption from federal income tax
• Tax-deductible contributions and
• Reduced postal rates

Page 16 – Benefits

Richard: I see that there are a lot of financial benefits.

Leagle: That’s right. In addition to being exempt from federal income tax, contributions to organizations exempt under Section 501(c)(3) are tax deductible, you may be exempt from paying state income, sales and employment taxes, you have access to reduced postal rates, you are exempt from paying federal unemployment tax, and you can receive tax-exempt financing.

Richard: With all these great benefits, I bet there are responsibilities as well.

Leagle: Of course. We’ll go over them. Select the responsibilities button to find out more.

Page 17 – Responsibilities

Richard: So what are the responsibilities for a tax-exempt organization?

Leagle: Your most important ongoing responsibility is to keep your organizations activities focused on accomplishing the exempt purpose you were approved for. You’ll also need to make sure your organizations records are in good order, that it meets IRS annual filing requirements and it complies with public disclosure rules. I’ll give you a brief overview of each of these last three. Select the continue button to learn more about record keeping.

Page 18 – Recordkeeping

Richard: Okay, Leagle, you mentioned recordkeeping. Do I have to keep a lot more records than I normally would?

Leagle: You should keep detailed records, including records you’d probably want to keep for any business. For example, you’re required to keep books and records detailing all activities, both financial and nonfinancial. Publication 4221-PC, Compliance Guide for 501(c)(3) Public Charities PDF, has information on why you need to keep records, what records you should keep, and how long to keep your records. Select the continue button to learn more about annual filings.

Page 19 – Annual filings

Leagle: Most public charities recognized as tax-exempt under section 501(c)(3) of the Code are required to file an annual information return: either the Form 990 or Form 990-EZ or the Form 990-N. Good records make it easier to complete your required annual filings. Certain categories of organizations are not required to file, including churches and certain church-related organizations. Select the continue button to learn more about public inspection requirements.

Annual filings can include

• Form 990
• Form 990-EZ
• Form 990-N (e-Postcard)

Page 20 – Public disclosures

Richard: Who else do I have to show these records to? And do I have to make all of my records public?

Leagle: You’re required to make public certain documents that you file with the IRS but not all of your records. You must make all the following documents available upon request:

• The organizations annual returns for its 3 most recent years after the due date including any extensions. This includes Form 990, 990-EZ, 990-PF and form 990-T.
• All Form 990 schedules (except Schedule B), their attachments and supporting documents,
• Your approved application for exemption and all supporting documents, and
• The determination letter from the IRS showing that your organization has been granted tax exempt status.

There are additional rules about what must be disclosed, how to provide documentation and consequences for non-compliance. All of that’s covered in the Required Disclosures course on Stay Exempt.

Page 21 – Knowledge check #2

Leagle: Let’s test your knowledge again. Which of the following is not a responsibility of a public charity. Select the appropriate answer then select the submit button to check your answer.

D. That’s Right!

Page 22 – Progress check #2

Leagle: Great job! You’ve learned about the benefits and responsibilities associated with 501(c)(3) status. Next, we’ll talk more with Richard about this status might be right for him, and what he’ll need to do to apply for it. Select the continue button to move forward.

Page 23 – Preparing to apply for tax-exempt status

Apply for an EIN:

• Go to the IRS website or call a toll-free number (800) 829-4933 and get an EIN immediately.
• Fax Form SS-4 to the IRS and get an EIN within 4 business days
• Complete Form SS-4, Application for Employer Identification Number, and mail it to the IRS
• See Tax information for businesses for more information

Leagle: So, Richard, now that you know what it means to have a 501 (C) (3 organization and how maintain it, do you think you’re ready to apply?

Richard: Yes, I can definitely see how this would benefit my organization. What do I need?

Leagle: Do you have an EIN?

Richard: No, I don’t. But I remember you saying I need it whether or not I have employees. How do I get one?

Leagle: There are a number of ways you can apply for an EIN.

• The fastest is to go to the IRS website and get an EIN you can use immediately.
• You can also fax your Form SS-4, Application for Employer Identification Number PDF, and you’ll receive your EIN within 4 business days, or
• You can do it the old-fashioned way by completing Form SS-4 using the form’s instructions PDF and mailing it to the IRS.

Next, you’ll need to gather your organizing documents. Select the organizing documents button to learn more.

Page 24 – Organizing documents

Richard: All right, I know how to get my EIN. What else do I need?

Leagle: An organization can’t qualify for exempt status without an organizing document. That means your application will be rejected without it. For a corporation which is an organization granted corporate status by a state agency. Its organizing documents will be its articles of incorporation. For all others, or unincorporated organizations the organizing document might be called a charter, constitution, or article of association. To qualify for exemption under Section 501(c)(3), the organizing document must contain three provisions. Including some specific language.

First, the organizing document must have a clause that limit the organization’s purposes to one or more of the exempt purposes listed in code Section 501(c)(3). Here’s an example of a wording of this clause:

“The organizations is organized exclusively for charitable, religious, educational, and scientific purposes under Section 501(c)(3) of the Internal Revenue Code, or corresponding Section of any future federal tax code.”

Next , the organizing document must not give the organization the ability or permission to engage in activities that don’t advance those exempt purposes.

Finally, the organizing documents just include a dissolution clause which states that the assets of the organization, such as the organization’s money and property, are permanently dedicated to an exempt purpose described under code Section 501(c)(3). Here’s an example of the wording of a dissolution clause.

“Upon dissolution of this organization, assets shall be distributed for one or more exempt purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code, or corresponding Section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose.”

Theres more information about these clauses in publication 557. You can find more information including sample documents at the charities and non-profits section of Irs.gov. When your ready to continue select the continue button.

Page 25 – By-laws

Richard: I heard an exempt organization should have by-laws. Are by-laws different from the organizing documents?

Leagle: Yes Richard, by-laws are an organization's internal operating rules. Federal tax law doesn’t require specific language in the by-laws. However, state law may require you to have by-laws, so it is a good idea to contact your state to find out the specific requirements.

Richard: My organization is in California. Do you know who I should contact there?

Leagle: In the "Life Cycle of a Public Charity" area of the IRS Charities and Non-Profits page, there’s a page about the by-laws and you’ll find links to the websites of the appropriate state officials.

Page 26 – Knowledge check #3

Leagle: Let’s test your knowledge. Select the answers that are appropriate for this question. Which of the following are requirements for the organizational documents of charities applying for tax-exempt status? When your done select the submit button to check your answer.

1. Limit the organization’s purposes to one or more exempt purposes
2. Bar the employees from participating in activities that don’t further the organization’s purpose
3. Constrain the organization to engage in activities that further its exempt purposes
4. Define the hours of operation and location of the organization
5. Permanently dedicate the assets of an organization to an exempt purpose

If you chose a, c and e…

• Limit the organization’s purposes to one or more of the exempt purposes set forth in section 501(c)(3)
• Must not expressly empower the organization to engage in activities that are not in furtherance of its exempt purposes
• Assets of the organization must be permanently dedicated to an exempt purpose described under section 501(c)(3)

… then you are correct!

Page 27 – Progress check

Great job, now you understand the basics of 501(c)(3) eligibility. Next well help Richard learn how to determine if his organization is a private foundation or public charity. Select the continue button to move forward.

Page 28 – Section 501(c)(3) Exempt Purposes

Richard: You mentioned that an organization must have one or more specific purposes to qualify as tax-exempt under Section 501(c)(3). What are those purposes again?

Leagle: A 501(c)(3) organization is organized and operated exclusively for purposes that are:

• Religious
• Charitable
• Scientific
• Testing for public safety
• Literary or educational
• Designed to foster national or international amateur sports competition, or
• For the prevention of cruelty to children or animals.

There are many kinds of organizations that operate for these purposes. For example, organizations that provide relief of the poor, distressed or underprivileged; those that lesson neighborhood tensions; or those that defend human and civil rights usually qualify as charitable organizations. Educational organizations can be schools, museums, symphony orchestras, training for the unemployed, dance classes and zoos.

If your organization doesn’t operate for one of these exempt purposes perhaps it meets another 501(c) category like 501(c)(4) for civic leagues, 501(c)(19) for veterans organizations or even 501(c)(7) for social clubs. Use this IRS resource button for more information on these other types of exempt organizations. Or download Publication 557 tax exempt status for your organization.

Page 29 – Two-part test for charities – Organizational test

Richard: So, because I’m planning to start an organization that prevents cruelty to animals a listed 501(c)(3) purpose you just covered do I need to do anything else to establish that it would qualify as a 501(c)(3)?

Leagle: Yes, you need to show how your organization will meet the Organizational and Operational tests, but we’ll focus specifically on how a prospective 501(c)(3) organization does it.

First, let’s talk about the Organizational Test. This test is used to determine if the organization is properly organized. To pass this test the organization must:

• Limit its purposes to one or more of the exempt purposes listed in Code Section 501(c)(3)
• Not permit the organization to engage in a nonexempt activity and
• Ensure that assets of the organization are permanently dedicated to an exempt purpose.

Richard: This sounds really familiar.

Leagle: That’s because these are provisions you need to have in your organizing documents, which we just talked about. So if you write your organizing documents correctly, this test will be easy to pass.

Now let’s talk further about the Operational Test.

Page 30 – Two-part test for charities – Operational test

Richard: Okay, so the organizational test was pretty easy. What about the operational test?

Leagle: Well, the operational test covers how your organization is actually operated. To pass the operational test, your organization must show that its principal activities will be to further its exempt purposes. Your organization has to limit the participation in certain kinds of activities and absolutely refrain from others.

The IRS assesses the activities you described in your form 1023 application to make sure they qualify. This test is conducted when you’re first applying for tax-exempt status, but if your activities gets out of balance after you receive your status, or if your organization engages in prohibited activities, you can lose your tax-exempt status and be subject to both taxes and penalties.

Richard: What are the restricted and prohibited activities?

Leagle: If you’re interested in learning more about these kinds of activities, you should start with the Maintaining Tax-Exempt Status course, which discusses how you could possibly jeopardize your tax-exempt status. There’s also the Unrelated Business Income Course, the Political Campaigns and Public Charities Course, the Required Disclosures Course, and the Employment Issues Course.

Now, let’s talk about the difference between a public charity and a private foundation.

Page 31 – Public charity versus private foundation

Richard: So once I pass both tests, I can be recognized as a tax-exempt charity?

Leagle: Not quite yet. When an entity qualifies as a 501(c)(3) organization, the IRS presumes it’s a private foundation unless it can show that it’s a public charity.

Richard: So, what’s the difference between a public charity and a private foundation?

Leagle: The main difference is where the organizations financial support comes from. Generally, a public charity has a broad base of support while a private foundation has very limited sources of support. There are also different tax rules – so, for example, private foundations are subject to excise taxes that aren’t imposed on public charities. There are more differences – and you can look into those on the IRS.gov website under Lifecycle of a public charity/private foundation. There’s also a course on foundation classification called The Wonderful World of Foundation Classification.

Page 32 – Public charities

For now, we’re going to concentrate on public charities. Some organizations automatically qualify as public charities based on the Code, so they’re called statutory public charities. Some examples are churches, schools, and organizations providing medical or hospital care (including medical education and research). These organizations still have to pass the operational and organizational tests. Or, if your organization receives significant public support or it provides support to other public charities, you may qualify that way. Otherwise, you’ll have to demonstrate you are a public charity by other means. To learn more select the continue button.

Page 33 – Showing your organization as a public charity

Richard: My friend Chloe is starting an organization that could be considered a private foundation. How can she show the IRS that her organization is actually a public charity?

Leagle: If Chloe’s organization is not a statutory public charity, it may still be a public charity if passes the organizational and operational tests and shows it receives broad public support. To have broad public support, her organization must be able to demonstrate the following:

• That it receives a substantial part of its support in the form of contributions from publicly supported organizations, governmental units and/or the general public or
• That it normally receives no more than one-third of its support from gross investment income and unrelated business income combined and gets more than one-third of its support from contributions, membership fees, and gross receipts from activities related to its exempt functions.

This is another situation where good recordkeeping can really help you.

Let's talk more about Chloe’s situation. Select the continue button to move forward.

Page 34 – After your first five years

Richard: Chloe’s organization is still really small. I’m not sure if she can show broad public support yet.

Leagle: No problem! If she can show that her organization can reasonably expect to meet these criteria, her organization if granted 501(c)(3) status, will be treated as a public charity for the first five years regardless of how much public support it actually gets.

Richard: So what happens on year six?

Leagle: At that point, the IRS starts monitoring the status of all public charities based on the public support reported on Schedule A, Public Charity Status and Public Support of your Form 990.

Because her organization is not a statutory public charity, she’ll have to show that her organization meets one of the public support tests over a five year computation period, including the current year and the four preceding years. If her organization passes one of the tests, her organization will remain a public charity for that year and the next tax year.

Why don’t you try a few activities now? Select the knowledge check button to check yourself.

Page 35 – Knowledge check #4

Leagle: Select the appropriate answer to go in the blank space. When your done select the submit button to check your answer.

To be recognized as tax-exempt under Code section 501(c)(3), an entity must meet an organizational test and what other test?

1. Critical
2. Operational
3. Principal
4. Inspirational

B) Operational

Page 36 – Knowledge check #5

Leagle: Enter the appropriate answer. When your done select the submit button to check your answer.

501(c)(3) organizations have either a public charity or a private foundation designation. An organization may qualify for public charity status by demonstrating that it can or does receive what kind of broad support?

1. Financial
2. Technical
3. Public
4. Moral

C) Public

Page 37 – Progress check

Leagle: Great job! Now you know how to determine whether your organization is a private foundation or a public charity. Next, we’ll help Richard with the basic requirements of applying for tax-exempt status. Select the continue button to move forward.

Page 38 – Becoming tax-exempt

Richard: Now that I understand the benefits of tax-exempt status under Section 501(c)(3), I think I’m ready to start the application process.

Leagle: Congratulations, Richard! Filling out the forms can be a big task, but before you start, there are a few things you should know. First, you need to know which documents are required, the user fees for applying, how group and church exemptions work, and some key information for running your organization while you are waiting for tax-exempt status approval.

First, let’s start with an overview of Form 1023, as that is the bulk of your application. Select the Form 1023 button to continue.

Page 39 – Basic application information

Richard: What do I need to apply for tax-exempt status?

Leagle: You need two basic things: Form 1023, and your user fee.

Leagle: Form 1023 is the Application for Recognition of Exemption document.

Richard: So how much is this going to cost me?

Leagle: Well the amounts can change year to year so click this link for the current fees. The user fee is based on the organization’s average annual gross receipts over a four-year period. Gross receipts are the amount an organization receives from all sources before taking out any costs or expenses.

Richard: But my organization hasn’t been around for four years.

Leagle: The gross receipts are based on actual funds received or funds your organization plans to receive or actually has received over a four-year period.

Page 40 – Application timeline

Richard: Is there a deadline for me to file my Form 1023?

Leagle: Good question Richard. There are time limits. Generally, in order for the tax-exempt status of your organization to be recognized from the day you open, you need to file Form 1023 within 27 months of the end of the first month it was created. This timeline graphic will show you an ideal schedule for a new tax-exempt organization.

Richard: So how long will it take to get my application approved?

Leagle: The IRS receives many applications for exemption ranging from very straight forward to extremely complex. Immediately after receiving your application and user fee, we’ll send you an acknowledgement notice and deposit the user fee. If we’re able to approve your application or if we only need a minor amount of additional information to complete our review, you’ll hear from us again in about 90 days. If the application is very complicated or missing a substantial amount of information, it will be assigned to an exempt organization, also known as EO, Specialist. This person will work directly with you to get all the information needed to make a proper assessment. So if you haven’t heard from us 90 days after you received the acknowledgement notice, go to Where's my Exempt application on IRS.gov.

If your organization meets the requirements for exemption, the IRS will issue you a determination letter recognizing your organization’s exempt status under Section 501(c)(3) and also showing your foundation classification.

Page 41 – Determination Letter

This determination letter is an important document. You should keep it with your organization's permanent records. You’ll need it for any public disclosure requests.

Page 42– Group exemptions

Richard: Okay. So what are group exemptions?

Leagle: Sometimes the IRS recognizes a group of organizations as tax-exempt if they’re affiliated with a central organization. This avoids the need for each organization to apply individually. A group exemption letter has the same effect as an individual exemption letter, but it applies to more than one organization.

Richard: So if I work together with a couple of other animal rescues; can we apply as a group? We share the same overall mission but we have slightly different organizational goals. Some focus on rescuing, others want to build a location for animals that can't return to the wild. Another organization is strictly set up to promote animal rights by lobbying congress for stricter animal neglect and abuse laws.

Leagle: In principle, yes. You’d have to have one central organization that all the organizations are affiliated with. Select this link for more information. Or select the continue button to move on.

Page 43 – Church exemptions

Richard: Do churches have to apply too?

Leagle: Another good question. Churches, including synagogues, temples and mosques, don't have to file for tax exemption, yet they’re still exempt from federal income tax - and the contributions they receive are tax deductible. But, even though they aren’t required to file an application, many do in order to receive a determination letter that proves their tax-exempt status and specifies that contributions to them are tax deductible.

Page 44 – Post application operational guidance

Richard: So, once I’m running my organization and I’ve started the application process, is there anything else I need to do?

Leagle: Yes, you can operate as a tax-exempt organization while you’re awaiting approval, but donors won’t have assurance that contributions to your organization are tax deductible until your application is approved. While you’re waiting for approval, you can learn more about the responsibilities of a 501(c)(3) organization. Do you remember what those are?

Richard: Yeah. You mentioned recordkeeping, annual filings and public disclosures.

Leagle: That’s exactly right. You should take the Maintaining Tax-Exempt Status course to review all of the activities you need to be familiar with in order to maintain your status. Let's try a couple more knowledge checks.

Page 45 – Knowledge check #6

Leagle: Let’s test your knowledge. Select the most appropriate answer, then select the submit button to check your answer.

How do you determine the user fee associated with applying for tax-exempt status?

1. Public charity status
2. Number of employees
3. Expenses
4. Gross Receipts

D) Gross Receipts

Page 46 – Knowledge check #7

Leagle: Lets try another activity. Here are the items from the application timeline. Put the items in the proper. Then select the submit button to check your answers.

1. File Form 1023 or 1023-EZ to apply for Section 501(c)(3)
2. IRS deposits user fee
3. IRS approves simple applications
4. EO specialist is assigned to complex cases for further review
5. Determination letter arrives

Page 47 – Progress check

Leagle: Great job! Now you can explain how to apply for tax-exempt status and discuss the rules for running a tax-exempt organization. Select the continue button to move forward.

Page 48 – Resources

Leagle: I know I shared a lot of Exempt organization resources with you. I’ve put them together here so feel free to review them.

• IRS Life Cycle page

• Form 1023: Tax Exemption Application
• Applying for Recognition of Exemption
• Where’s My Exemption Application webpage
• Publication 4220, Applying for 501(c)(3) status
• Publication 4221-PC, Compliance Guide for 501(c)(3) Public Charities
• Publication 557, 501(c)(3) Status for your Organization
• State government websites related to exempt organizations
• Maintaining 501(c)(3) Tax-Exempt Status course
• Overview of Form 1023 e-Filing

Page 49 – Conclusion

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