Things move slowly at the IRS, which is just as well because it’s a big institution that touches the lives of just about everyone. When they do make a change it can impact a lot of people and businesses. The IRS has made changes for 2018 that affect anybody starting a nonprofit. If you want to get 501(c)(3) status and haven’t yet submitted your application, you should read on.
When applying for 501(c)(3) tax-exempt status, the IRS has found that the number one reason for delay in insurance of determination letters (the letter that confers your organization with tax-exempt status) is the absence of the all-important purpose and dissolution clauses in an organization’s Articles of Incorporation. Many states do not require these provisions to be included an organization’s documents when filing for incorporation; thus, many people do not realize that these clauses are required for gaining 501(c)(3) status with the IRS. This is particularly important for organizations that are not eligible to file form 1023-EZ, as form 1023 requires applicants to identify where the purpose and dissolution clauses are located in an organization’s Articles of Incorporation. If your organization does not have the proper clauses written in its Articles, an amendment to the Articles will need to be filed before submitting form 1023, and the amendment will need to be included in the organization’s application for 501(c)(3) tax-exempt status.
In a previous blog post, we discussed the difference between the form 1023 and 1023-EZ. Form 1023 is a long form that requires extensive narrative concerning your organization such as, your whistle blower policy, dissolution clause, etc., and the 1023-EZ is the streamlined version that consists of checkboxes that rely on your trust that all of the information is accurate and accounted for.
Public charities and private foundations, though often used interchangeably, are two different kinds of tax-exempt organizations. Public charities are known for doing charitable services and private foundations are known for supporting the work of public charities. They are closely related but there are some key components that make them different. Below are two definitions provided by google of what a public charity and a private foundation is.