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African Teachers  Association-USA


2510 Hamilton Avenue ,Baltimore , MD 21214 .Tel: 443-744-5328

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Exemption Requirements - Section 501(c)(3) Organizations

To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.

Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170.

The organization must not be organized or operated for the benefit of private interests, and no part of a section 501(c)(3) organization's net earnings may inure to the benefit of any private shareholder or individual. If the organization engages in an excess benefit transaction with a person having substantial influence over the organization, an excise tax may be imposed on the person and any organization managers agreeing to the transaction.

Section 501(c)(3) organizations are restricted in how much political and legislative (lobbying) activities they may conduct. For a detailed discussion, see Political and Lobbying Activities. For more information about lobbying activities by charities, see the article Lobbying Issues; for more information about political activities of charities, see the FY-2002 CPE topic Election Year Issues.

Additional Information

Application Process Step by Step:  Questions and answers that will help an organization determine if it is eligible to apply for recognition of exemption from federal income taxation under IRC section 501(a) and, if so, how to proceed.

To be recognized as exempt, an organization must submit a completed, signed, and dated application with the appropriate user fee. If an organization is seeking recognition of exemption under section 501(c)(3) of the Code, it must complete and file Form 1023, Application for Recognition of Exemption. Most other organizations must complete and file Form 1024, Application for Recognition of Exemption Under Section 501(a).  (The IRS provides answers to frequently asked questions about the revision to Form 1023 dated June 2006.)

How do we apply for federal tax-exempt status?

For a nonprofit company to qualify for 503(c)(3) federal tax-exempt status, it must file IRS form 1023. Filing of Form 1023 must be postmarked within 15 months after the end of the month when the Articles of Incorporation were filed. The tax-exemption is effective retroactively to the date on which your Articles of Incorporation were timely filed. When the IRS approves the tax-exemption, the nonprofit corporationcan be assured that contributions made to it are tax deductible, and that the corporation is tax-exempt.

What are the advantages of a nonprofit corporation?

If your nonprofit is granted tax-exempt status under 501(c)(3) of the Tax Code, your corporation will be exempt from payment of federal corporate income taxes. In addition, a 501(c)(3) nonprofit corporation may receive both public and private grants. Further, individual donors can claim a federal income tax deduction of up to 50% of income for donations made to 501(c)(3) groups. Nonprofit corporations also enjoy the same limited liability protection as for profit corporations. Accordingly, directors or trustees, officers and members are typically not personally liable for the debts and obligations of the nonprofit corporation. Other benefits include perpetual or unlimited life for the corporation; retirement funds and retirement plans may be established more easily; 503(c)(3) corporations receive lower postal rates on certain bulk mailings.

Disadvantages of a Nonprofit Corporation?

Increased paperwork that is required, including by-laws of corporation and the minutes of meetings which must be recorded and kept with other corporate records. Form-A-Corp can assist by preparing and filing your incorporation papers, and our Nonprofit Kit contains preprinted sample by-laws and minutes of meetings. In addition, applications for tax-exempt status must be filed at both the federal and state levels.

501c3 Tax Exempt Filing

The primary benefits of tax exempt status include:

Donors can make charitable contributions and receive a tax deduction. Most often donors will refuse to offer funding if they will not receive a tax deduction.

The organization will be qualified to receive private and public grant money.

As an tax exempt organization you can save money on lower postage rates on corporate mailings.

If you are looking to form a nonprofit, you will need to go through nonprofit registration and nonprofit filing.

Here at Form A Corp, we can not only guide you through the process, we can aid you in completing all necessary forms to quickly get the tax exempt status so you can begin to receive donations.

Applying for the nonprofit status can be both tedious and complex. If an inexperienced individual attempts to complete the IRS application, and does it incorrectly, it can add months of delays to your approval from the IRS. Most of our clients who chose to take advantage of our 501c3 services, through our educated and experienced staff, benefited with a faster approval by completing the IRS application quickly and correct the first time.

When should a nonprofit corporation be established?

A nonprofit corporation should be organized when the intent is to pursue a religious, charitable, educational, literary or scientific purpose permitted under 501(c)(3) of the tax code. The specific purpose of the nonprofit corporation must be properly set forth in its articles of incorporation so that nonprofit and tax-exempt status may be obtained.