IRS Tax-Exempt Requirements and Procedures

To claim IRS tax-exempt status (the freedom from paying taxes), organizations have to follow the correct procedures and meet specific requirements.

Who Is Exempt?

Section 501(c) of the Internal Revenue Code lists the different organizations that can claim tax-exempt status. Twenty-eight different groups of organizations have the tax-exempt status. The most common tax-exempt entities are

  • churches
  • schools
  • charitable organizations
  • government agencies

How to Gain Status

Every entity that wishes to be granted tax-exempt status must file Form 990 annually. This form is to be filed with its tax returns, which are necessary even though the organization does not pay taxes on the money it brings in. In addition, the organization has to keep a detailed record of its financial dealings.

Tax Deductibles

Many tax-exempt organizations, such as charities, encourage individuals and other parties to donate money to them by mentioning that donors receive special tax breaks. Note, however, that the fact that an organization is called a charity does not in itself mean that you can make a tax deduction for money you donate to it. Only donations to organizations under the 501(c) 3 designation are tax deductible. To find a complete list of 501(c)3 organizations and to check whether a particular organization is on the list, go to the IRS website and look up the organization.

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