501(c)(3) requirements: What to know before you file

You’ve recruited a passionate group of volunteers, drafted your mission statement, and decided on a name for your newly-formed nonprofit organization. Before you can start collecting tax-deductible donations, however, you need to file for tax-exempt status with the Internal Revenue Service (IRS). 

In this article, we’ll share an overview of 501(c)(3) requirements along with the basic steps you can take to start filing for your nonprofit’s tax-exempt status. 

Please note: This post is meant for informational purposes only, and should not be taken as legal advice. 

Key takeaways

• Defining our terms 👉 501(c)(3) is an IRS designation with several requirements
• Understanding the benefits 👉 Enhanced credibility, money saved, donor incentives, and more
• The process begins 👉 First, confirm your eligibility
• Know which form to file 👉 1023 or 1023-EZ? 
• Get organized 👉 Articles of organization, EIN, and fees
• It’s all worth it 👉 Make the most of your tax-exempt status with Givebutter’s free fundraising tools

What is a 501(c)(3) organization? 

A 501(c)(3) is a charitable organization that has filed for tax-exempt status with the IRS. 

Organizations that file for their 501(c)(3) status must be created to serve the greater good—in other words, they cannot serve the private interests of one small group or individual. For example, an organization that seeks to pass on donations to a political candidate cannot file for 501(c)(3) status, because that type of organization would serve the exclusive interests of that particular candidate. 

There are a number of different types of nonprofits that can file as a 501(c)(3) organization, including: 

• Religious, charitable, scientific, literary, or educational organizations 
• Public safety organizations
• Private foundations 
• Amateur sports competitions and organizations 
• Organizations dedicated to preventing cruelty to animals or children

Why do nonprofits become 501(c)(3)s?

Securing 501(c)(3) status is often viewed as the gold standard for nonprofits. It transforms your organization from a group of passionate individuals into a federally recognized entity with significant financial and operational advantages, including:

• Federal income tax exemption: Your organization does not have to pay federal corporate income tax on revenue related to your mission, enabling more of your funding to go directly toward your programs.‍
• Tax-deductible contributions: Individuals and corporations can deduct their donations from their own taxes, providing a powerful incentive for them to support your cause. Under current tax laws, even donors who do not itemize can now take advantage of a universal charitable deduction (up to $1,000 for individuals), making small-dollar fundraising more effective than ever.‍
• Grant eligibility: Most private foundations and government agencies only award grants to organizations with 501(c)(3) status. Without it, you may find yourself locked out of significant nonprofit funding opportunities.‍
• Reduced operating costs: Nonprofits can often qualify for specialized "nonprofit rates," including postage, state taxes, and discounted fees or free access to software.

Ultimately, the 501(c)(3) designation acts as a seal of approval, signaling to the public, donors, and partners that your organization is legitimate, follows federal regulations, and is committed to a charitable mission.

More to explore

How to start a nonprofit organization (free checklist!) →

The requirements: How to file for 501 (c) (3) tax-exempt status 

The application process to file as a 501(c)(3) organization can be a daunting process. Before getting started, note that it’s in your best interest to partner with an attorney or accountant who is well-versed in tax law when filing the paperwork. 

Pro tip: if you’re looking for a low-cost option, many state bar associations have a pro bono requirement for attorneys applying to pass the bar! 

1. Confirm your eligibility 📝

Before you start the application process, you need to ensure your nonprofit is actually eligible for 501(c)(3) status. The IRS’s exemption requirements include the following musts: 

• Your organization is built and operated exclusively for religious, charitable, scientific, literary, or educational purposes.
• Your organization’s primary purpose is not to influence legislation, and you won’t participate in electoral campaigns.
• Your organization's earnings will not benefit any private shareholder.
  

Once you’re sure your organization qualifies, you’re ready to move forward. 

2. Determine which form you’ll need to file 📚

There are two different forms available to file for federal tax exemption: Form 1023 or Form 1023-EZ. Some organizations, primarily religious institutions, are not required to fill out either form.

Form 1023-EZ is specifically created for smaller organizations with assets of less than $250K or annual gross receipts of $50K or less (Fill out the worksheet to see if you qualify). If you anticipate receiving higher donations, you’ll have to use Form 1023.

3. Include your articles of organization 💼

The IRS application process also requires that you include your nonprofit’s articles of organization (or articles of incorporation). These are the foundational legal documents filed with your state that officially establish your organization, whether as a trust, corporation, or association. Form 1023 also requires you to attach your nonprofit bylaws. 

To satisfy the IRS and qualify for 501(c)(3) status, these articles must do more than just name your nonprofit; they must contain required provisions regarding your mission and the protection of your assets. 

These include:

• An explicit statement that your activities are limited to exempt purposes (e.g., charitable, educational, or scientific).
• A guarantee that if the nonprofit closes, its remaining assets will be distributed to another tax-exempt organization or a government entity, rather than to private individuals.
• Language ensuring that no part of the organization’s net earnings will benefit private shareholders or individuals.

Pro tip: Contact your state association of nonprofits for state-specific guidelines, and make sure any "boilerplate" forms they share include the specific IRS-required language for exemption. 

3. Get your finances in order 💰

To file for tax-exempt status under section 501(c)(3), every public charity must include its own EIN (employer identification) number, even if you don’t have full-time employees. You can apply for an EIN online via Form SS-4. This form requires basic information, including your contact details, the type of entity, and the reason for applying. 

All 501(c)(3) organizations have certain reporting requirements in order to keep their tax-exempt status.   Once you have your EIN, create a bank account specifically for your organization. This will help you track all your nonprofit finances, including fundraising campaign activities and tax-deductible expenses.

At the end of each year, you'll use your record books to fill out an annual information return (the nonprofit equivalent of a tax return). Typically, you'll have to file either Form 990, Form 990-EZ, or Form 990-N, depending on your organization's type.

5. Pay the fee and wait 📬

Along with your online application, the final requirement for 501 (c) (3) organizations is a user fee, also paid online. The cost for Form 1023-EZ is $275, and for Form 1023 it is $600. Applications can be expedited under certain circumstances. 

Once everything is submitted and paid, it’s time to wait to receive your determination letter in the mail. The IRS keeps a schedule of its processing progress online, and you can also check the Tax Exempt Organization Search Tool to check on your status digitally. 

Dive deeper

See why more nonprofits are choosing fiscal sponsorship for tax-exempt status →

Make the most of your 501(c)(3) status with Givebutter

Applying for your 501(c)(3) can be a slog, but you’ll be so grateful when it’s done, and you can enjoy the benefits of tax-exempt status. 
Givebutter is the all-in-one fundraising platform helping thousands of nonprofits reach their campaign goals. With everything you need for fundraising, donor management, and supporter engagement under one roof, Givebutter is the perfect fit for scaling grassroots nonprofits—and thanks to the Givebutter Guarantee, our core features are 100% free to use.

Ready to see how Givebutter can get your nonprofit off the ground? Create your free account to get started today.

Frequently asked questions about 501(c)(3) requirements

Do nonprofits have to have 501(c)(3) status?

Nonprofit organizations are not required to have 501(c)(3) status with the IRS; however, there are many benefits of tax-exempt status, including access to grants, tax-deductible donations, and reduced fees for software and other services. 

How long does it take to get 501(c)(3) status? 

It can take from several weeks to several months to get approved by the IRS for tax-exempt status.

The IRS claims that it issues most 1023-EZ determinations within 22 days. If they require more information from your organization, the process may take up to 4 months or more. 

For Form 1023, the process is much longer, with 80% of applications receiving a determination letter within 191 days.

When should a nonprofit apply for tax-exempt status?

The IRS encourages organizations to submit their 501(c)(3) applications within 27 months of incorporation. Generally, a nonprofit will create an organization under state law, obtain an EIN, and then apply for tax-exempt status.