TAX-EXEMPT STATUS

Societies may wish to apply to the Internal Revenue Service for designation as an entity exempt from federal taxation under the provisions of §501 C (3) of the Internal Revenue Code. There is no federal requirement that organizations applying for federal tax-exempt status be incorporated under state law. Certain advantages may accrue from an IRS determination that a society is tax-exempt. The society will be generally exempt from federal income tax. In most states, the society will also be exempt from state sales tax. Members and others who make donations to the society will be able to deduct the amount of their contributions in whole or in part from their gross income when computing their personal income tax liability. Finally, tax-exempt organizations may use a reduced bulk postage rate for large mailings.

Those societies whose annual gross income exceeds $5000 and who seek tax-exempt status must apply to the IRS for a determination letter, and must pay a one-time “user fee.” The IRS generally waives the determination letter and user fee for those societies whose annual income is less than $5000. In that case, the society may simply declare its tax-exempt status without formal application. In either case, a society applying for or declaring tax-exempt status must apply for an Employer Identification Number (even if there are no employees).

A society should weigh the advantages of tax-exempt status against the user fee requirement. Societies with gross receipts averaging less than $10,000 per year must pay a fee of $150 with the application. Societies with gross receipts averaging more than $10,000 per year must pay a fee of $500 with the application.

Societies considering applying for tax-exempt status should request the IRS publications and forms listed below by calling the IRS toll-free number — 800-829-FORM — or the appropriate number listed in the telephone directory under U.S. Government, Internal Revenue Service, Information and Forms. Information is also available online at www.irs.gov under "Charities & Non-profits."
 

NUMBER	TITLE
Publication 557	Tax-exempt Status for Your Organization
Package 1023	Application for Recognition of Exemption
Form 8718	User Fee for Exempt Organization Determination Letter Request
Form SS-4	Application for Employer Identification Number