Every year, thousands of IRS Form 501c3 applications get mired down in the offices of faraway bureaucrats—not because they violate any IRS rules or are poorly written, but because they omit key forms and schedules.
Congratulations—you will not be one those people! You’re well on your way to achieving IRS nonprofit tax-exempt status. But remember, this game is played on the IRS home field and if you don’t play by their rules, then you’re going to run into trouble. So, keep reading!
Playing by IRS rules means being aware of the forms and schedules the IRS will require you to submit. The vast majority of 501c3 groups require no schedules, and of those that do, the most common are Schedules A, B, H, and occasionally E which we’ll discuss in detail later. To cover all basis, we’ve listed other categories below, which are used less often.
If You’re a…..
- College or University: Schedule B.
- Hospital or Medical Research Organization: Schedule C.
- Section 509(a)(3) Supporting Organization: Schedule D.
- Home for the Elderly or Handicapped: Schedule F
- Low Income Housing Organization: Schedule F.
- The successor to a For-Profit Organization: Schedule G.
Questions can arise here, so If you’d like to discuss your options, you’re welcome to book a FREE consult call with one of our expert concierges here and grab some piece of mind.
Required Schedules for the Main 501c3 Groups
Schedule A: Churches
Technically, churches are not required to file a 501c3 application to be considered a tax-exempt
organization. However, filing is recommended for several reasons, a few of which are listed below.
By filing Form 1023, you will obtain the all-important “Determination Letter” from the IRS that’s considered proof that the church is indeed a 501c3 tax-exempt organization.
In nearly all cases, filing for 501c3 tax-exempt status has significant benefits that outweigh the costs:
1. Contacting donors and contributors: If you skip the 501c3 application, you won’t receive a tax-exempt Status Determination Letter from the IRS, which limits your fundraising options. The Determination Letter is required by many, if not most, grant-making foundations from which you may seek support. Individual donors often ask for a copy of the letter as a condition of giving, and rely upon this document to back up any tax write-offs for their contributions.
2. Legal and financial liability for you and your donors: If you do not obtain a Determination Letter, the IRS could later determine that the church did not qualify as a tax-exempt organization.
3. Uncertainty within your organization: Failure to file Form 1023 creates uncertainty as to whether a church is in fact tax-exempt. Moreover, completing your 1023 in-house is an excellent exercise to help your team really understand IRS requirements, crystallize your mission and purpose, and know where the organization is going.
4. Without a Determination Letter You Cannot Obtain a Nonprofit U.S.Postal Mailing Permit: With postal mailing rates increasing frequently, the ability to save about 40% on postage—particularly if you intend to communicate with members and/or use direct mail to fundraise—is crucial.
Any nonprofit that spends more than a couple of thousand dollars per year on mail must get a nonprofit mailing permit to avoid wasting precious donors’ funds.
Schedule B: Schools
Schedule B asks questions that determine whether your organization meets the IRS’ definition of a school and that you have implemented the proper anti-discrimination policies.
Schedule E: The 27 Month Rule
New organizations only have 27 months to submit a Form 1023, 501c3 application with the IRS. If filed within that period, tax-exempt status and tax-deductibility date back to the date of the organization’s inception. However, when a Form 1023 application is filed late, the IRS grants 501c3 status “prospectively”—effective as of the postmark date on the application envelope. Careful consideration should be given to potential tax implications for the organization as well as donors.
The 27-Month Rule is waived for: churches, very small publicly supported orgs, subordinate groups covered by a Group Ruling, and those created pre- October 1969.
If more than 27 months have elapsed since founding your organization and there will not be tax liability problems by doing so, we recommend forming a new organization using the same founders, board, mission, etc. The ease of doing so outweighs the risks of having your 501c3 application mired down in the IRS’ bureaucratic process for months or years.
If you’re filing your 501c3 application after the 27 month period—and there are many legitimate reasons to do so—you may need professional guidance. Book a FREE consult call with one of our expert concierges here and and save yourself time, headaches, and money in the long run.
Schedule H: Scholarships:
If your organization offers scholarships, complete Schedule H. If not, or if you are not 100% certain you will do so, do not mention scholarships on your application. It will complicate your approval process and invite additional scrutiny.
If you would like to offer scholarships after you are approved and have some funds in the bank, it is easy to amend your bylaws and statement of purpose with the IRS when you file Form 990.
Many applications are held up because the preparer simply forgot to include the proper Schedules. Even the most capable people can find that, in the flurry of paperwork surrounding their nonprofit launch, something like this can be forgotten.
Action Steps:
1. Decide what methods and activities your nonprofit will take on, so it becomes obvious which schedules you’ll be required to include. To help with this, read our blogs on defining your nonprofit mission and purpose and writing your “Narrative of Activities”, both of which are also required for IRS Approval on your 501c3 application.
2. Identify the specific schedule requirements for your type of nonprofit application.
We hope this helps! And again, we’re happy to answer any questions. You’re welcome to schedule a FREE consult call here to hash out the details.
To your mission,
Jacqui Long | Communications | Yippiekiyay Nonprofit Solutions
P.S. If you’d rather not deal with a paperwork headache and would love to save some time and money, check out our complete, done-for-you nonprofit formation and 501c3 application solution here.
