Obtaining federal tax-exempt status under Section 501(c)(3) is a critical step for organizations that intend to operate as public charities. While the process is often described as a filing exercise involving either Form 1023 or Form 1023-EZ, exemption is granted based on a broader evaluation of an organization’s structure, governance, activities, and finances.
For a discussion of IRS review timelines and what affects processing speed, see how long 501(c)(3) approval takes .
Organizations typically begin by forming a nonprofit corporation under state law. For New York organizations, see New York nonprofit formation.
In most cases, the preferred structure is a nonprofit corporation. This form provides limited liability protection, clear governance mechanics, and familiarity to regulators and the Internal Revenue Service.
Choice of state of formation matters. Organizations with no operational ties to a state may incur unnecessary compliance burdens if they form there.
Use of an LLC. An LLC can qualify for exemption only in limited circumstances. For most public charities, it is not the appropriate structure.
Missing required language. Governing documents must include:
See IRS guidance: Publication 557 suggested language .
The IRS evaluates governance as part of the exemption process.
The IRS generally expects multiple, independent directors. Independence helps demonstrate that the organization is not operated for private benefit.
Applicants must provide a detailed narrative of activities. This is a substantive test of whether the organization qualifies as charitable.
Organizations that solicit contributions may also need to comply with state registration requirements. For New York, see New York Charities Bureau registration.
These determine eligibility for Form 1023-EZ and affect IRS review.
For a detailed comparison of eligibility, risks, and when each form is appropriate, see Form 1023 vs. Form 1023-EZ .
Form 1023-EZ is available for smaller organizations.
Form 1023 requires detailed disclosures and full review.
Jonathan Lefkowitz is a New York attorney who advises nonprofit organizations on formation, federal tax exempt status under Section 501(c)(3), and regulatory compliance, including New York Charities Bureau registration.
For additional information, see Lefkowitz Law Firm.
This page is provided for general educational purposes only and does not constitute legal advice.