FAQs

Question:  My Arizona nonprofit corporation filed its IRS Form 1023 and applied to the IRS to become a tax-exempt charitable organization.  We understand that the current average time for the IRS to approve an application for tax-exempt status is sixteen months.  Can we tell prospective donors that their contributions to our charity while its tax-exempt application is pending are tax deductible on their IRS Form 1040s?

Answer:  “Yes, but your organization should include the warning that contributions are tax deductible so long as the organization actually gets its tax exemption.

When the IRS approves a timely filed exemption application, exempt status is recognized back to the date the organization was created. Thus, while an application is pending, the organization can treat itself as exempt from federal income tax under section 501(c)(3).  For example, it must file Form 990 (instead of an income tax return) while its application is pending.  However, contributors to the organization do not have advance assurance of deductibility because the organization’s exemption is pending.  If the organization ultimately qualifies for exemption for the period in which the contribution is made, the contribution will be tax-deductible by the donor.  Alternatively, if the organization ultimately does not qualify for exemption, then the contribution will not be tax deductible.

Question:  If my nonprofit corporation files its IRS Form 1023 today, how long will it take before the IRS issues a letter approving the corporation as a tax-exempt Section 501(c) charitable organization?

Answer:  See the the IRS’ web page called “Where Is My Exemption Application?” to determine how far behind the IRS is in reviewing applications for tax-exemption.  We know of organizations that have received favorable IRS determination letters as quickly as six weeks and as long as two years after submitting applications for tax exemption.

Question:  Our nonprofit corporation filed its IRS Form 1023 many months ago and has not yet been approved as a tax-exempt charity by the IRS.  Does the corporation have to file its tax return on IRS Form 990?

Yes:  A nonprofit corporation that seeks to become a 501(c)3) tax-exempt charity must file an IRS form 990 for the period beginning the day the corporation is formed  even if the IRS has not yet approved the corporation’s application for tax exemption.  The tax return must be filed EVEN IF THE CORPORATION DID NOT HAVE ANY INCOME!

If the corporation ultimately gets its tax-exemption, but failed to file Form 990s for three consecutive years, the IRS will automatically revoke the corporation’s tax exemption.