Although many believe that a non-profit is exempt as soon as it is established, this is not the case. A non-profit must file for tax-exempt status, with the IRS. Here, the business and non-profit law attorneys at Snee, Lutche, Helmlinger & Spielberger explain how a non-profit may file for tax-exempt status.
Tax-exempt status refers to the privilege some non-profits receive, where they are not required to pay federal income taxes on their net profits. Upon approval by the IRS for federal income tax exemption, non-profits based in Maryland may file for state income tax exemption as well. There are several steps a non-profit should take to apply for tax-exempt status.
Incorporate Your Non-Profit
Your non-profit will need to establish itself as a corporation or an LLC, which occurs at the state level. A unique name will need to be chosen for the entity—check to see if an entity with the name already exists. Articles of Incorporation or Articles of Organization will then need to be filed with the Maryland State Department of Assessments and Taxation. In addition to appointing initial directors in its charter, the entity will need to perform organizational steps, i.e., holding director’s meetings to adopt Bylaws and obtain Federal ID number (EIN), or enter into an Operating Agreement with its members.
File Paperwork with the IRS
After becoming a Maryland state-recognized corporation or LLC, a non-profit can file paperwork to begin the tax-exempt status process. This will start with obtaining an (EIN), which you can apply for online through the IRS website, or by phone at 1-800-829-4933, or by mailing in IRS Form SS-4, Application for Employer Identification Number. Next, complete Form 8718: User Fee for Exempt Organization Determination Letter Request.
Lastly, IRS Form 1023, Application for Record of Exemption Under Section 501(c)(3) of the Internal Revenue Code, will need to be filled out as well: it is a lengthy document, and quite detailed, so be sure to set aside an appropriate amount of time to properly fill it out. Depending on the nature of your non-profit, one of the Schedules attached to Form 1023 will need to be completed as well. If your non-profit will not exist as a 501(c)(3), Form 1024 should be completed instead. The IRS provides detailed instructions online.
Once drafts of these documents are all completed, they should be submitted to an attorney for review prior to submission to the IRS. The IRS will contact you should any documents be incorrectly completed.
Meet State and Local Tax-Exempt Requirements
Once you have received an IRS Determination Letter approving your non-profit’s tax-exempt status, you may file for an exemption from state income taxes. The Comptroller of the Treasury is the state agency responsible for acknowledging an exemption from Maryland’s income tax. Your non-profit must submit a variety of documents to the Legal Department of the Revenue Administration Division in order to apply. This includes a request for exemption from Maryland income tax, an explanation of the nature, purpose and scope of your organization, a copy of your IRS Determination Letter, granted tax-exempt status, a copy of your non-profit’s charter, Bylaws and a copy of your non-profit’s latest financial statement. An attorney should review all documents prior to submission to the State.
Ensure Your Non-Profit Remains Compliant by Hiring a Business Law Attorney
Just as a non-profit may receive tax-exempt status, it may also lose it, should the non-profit fail to adhere to the federal and state requirements and file its annual 990 return with the IRS. Enlisting the help of a business law attorney who understands the non-profit sector will prove invaluable to obtaining your tax-exempt status, maintaining it, and protecting your non-profit and its interests. Contact the professionals at Snee, Lutche, Helmlinger & Spielberger, P.A. for more information about non-profits and obtaining tax-exempt status.