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How does an organization become tax-exempt?
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How does an organization become tax-exempt?

To be recognized as exempt from federal income taxation, most organizations are required to apply for recognition of exemption. For section 501(c)(3) organizations, the law provides only limited exceptions to this requirement. Applying for recognition of exemption results in formal IRS recognition of an organization’s status, and may be preferable for that reason.

The IRS will recognize an organization as tax-exempt if it meets the requirements of the Internal Revenue Code. See Types of Tax-Exempt Organizations and Publication 557 , Tax-Exempt Status for Your Organization, for more information.

Organizations applying for tax-exempt status must submit two applications: First, if they have not previously received an Employer Number (EIN), they must apply for one, and second, an application for recognition of exemption.

The IRS sometimes recognizes a group of organizations as tax-exempt if they are affiliated with a central organization. This avoids the need for each of the organizations to apply individually. See Publication 4573, Group Exemptions, for more information.

DISCLAIMER: This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here.