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Nonprofit Education

Tax-Exempt Status for Nonprofits: The Waiting Period

It has been a winding yellow brick road of checkboxes and signatures, but you did it! You made it to Emerald City. Your 1023 application is signed, dated, and submitted with the filing fee, and now you can rest easy knowing that your application is pending approval from the Wizard of Oz, or the IRS. The question is: how long exactly will you be resting easy?

Most people anticipate at least some measure of processing time when considering how long it takes for a 501c3 to get approved, but what they do not realize is that it may take longer than just a few weeks. This is not due to the IRS holding your application over your head like a childhood bully, but rather due to other contributing factors.

How Long Does It Take for a 501c3 to Get Approved?

On average, the IRS receives more than 80,000 applications a year for nonprofits. While you may hear that it takes two months or eight months, the truth is that how long it takes for a 501c3 to get approved depends on the application. It can also depend on the time of year, the type and classification of the nonprofit, and the complexity of the application itself. For example, if you submit a 1023 application at the peak of tax season when tensions are high and filings are even higher, you cannot realistically expect to receive your nonprofit tax-exempt status lickety-split. Likewise, if your nonprofit involves a more multifaceted application schedule, such as a nonprofit church or school, the application requires a higher level of review. 

The same argument can be made when comparing a full 1023 application and a 1023-EZ application. EZ applications usually experience shorter time frames and smaller filing fees because they are shorter and less complicated than the full 1023 applications. EZ applications are processed faster, yes, yet the nonprofits that are associated with them are typically not as large or complex as the ones who employ the full 1023 application.

1023 Applications (501c3 Applications)

Regarding how long it takes for a 501c3 to get approved, the Internal Revenue Service states, “Some types of applications must be assigned to specialized agents due to the issues involved, however, and may take longer. These applications are also assigned in order from the date they were received.”

Based on this information alone, you can envision an assembly line of applications. Somewhere in that assembly line is yours, sitting behind the applications that have come before it. This is not to say that your application will be brushed aside until it can be reviewed, but rather it will be processed and approved in the order it arrived.

Things That Can Hold up Tax-Exempt Status for Nonprofits

stacks of IRS paperwork

Now that you understand the gist of why the approval of tax-exempt status for nonprofits can take so long, let us fast forward a bit. A few months have passed, the assembly line has continued to move, and it is finally your turn for 501c3 approval. The process can run smoothly from here, as it is just a matter of making sure all documents are filled out correctly with their proper attachments included. This point is also where things can potentially come to a screeching halt.

A missing schedule, a box left unchecked, or an incorrectly typed EIN are seemingly small, inconsequential mistakes that can often lead to large problems in the 501c3 approval world. Therefore, it is best to make sure your form 1023 is populated correctly, with each box checked and every explanation as detailed and informative as possible.

It is important to follow all aspects of the blueprints when constructing a project, and that is no different when seeking tax-exempt status for nonprofits. Each piece is necessary to complete the puzzle.

Things to Do in the Meantime

Depending on how long it takes for your 501c3 to get approved, there are many productive ways to fill your time. For starters, you do not have to sit at home, twiddling your thumbs, wondering how you can get your nonprofit off the ground in a time of stagnant inactivity. During the months it will take to receive your nonprofit tax-exempt status, you can be as hands-on and determined as you would have been had you been approved immediately. It may not seem like a lot at first, but the time, effort, and operations that go into a nonprofit are substantial.

If you have not yet had a chance to do so, meet with your board. Discuss the basics of your organization, as well as any long-term or short-term goals. Communication is key between board members, as it takes a hard-working crew to run a tight, well-oiled machine.

Some Basic Housekeeping Questions Your Board Can Ask Itself:

  • “Do we have a way of promoting and marketing our nonprofit?”
  • “Have we planned any fundraisers?”
  • “Are our programs and activities structured for maximum efficiency?”

Between life and other obligations, you may feel there is simply not enough time to organize your nonprofit properly and productively. It is good to use the time waiting for your nonprofit tax-exempt status to focus on administrative tasks. From constructing an interactive and informative website to orchestrating an engaging fundraiser that informs people what your nonprofit is about, there are no limits to what you can do to be proactive.  

Ideas to Consider While Pending Tax-Exempt Status for Nonprofits

Opening a bank account is a great first step for your organization after applying for an EIN, or Employer Identification Number. When looking for a bank it is best to do some research and ask yourself, “Which bank is known for working with nonprofits?” You will find that some banks offer checking accounts specifically designed for nonprofits. Raising funds, saving, and growing funds are very important for a nonprofit, which is why the organization must have and manage its bank account.

In addition to an EIN, other documents may be required to open a bank account. Some of the documents can include the Articles of Incorporation, the Bylaws, and various other records depending on the bank. Rarely will a bank request an IRS determination letter, but it is a possibility to keep in mind while comparing options.

Register Your Nonprofit

donations typed out on a typewriter

After opening a bank account, your next order of business should be registering your nonprofit for charitable solicitation. Also commonly called a Charity Registration, this form allows a nonprofit to solicit donations within their state. It is possible to solicit in other states as well, but that requires a larger process of registering in every state the nonprofit wishes to solicit in.

Once registered with your state, you are free to accept and solicit donations for your nonprofit, so long as your generous donors are aware you are pending your nonprofit tax-exempt status. Most of the time people are still happy to donate to a nonprofit that is just starting, as they understand that 501c3 approval takes time and that every organization must start somewhere. Your donors know they are helping an organization in its beginning stage. When the nonprofit eventually receives 501c3 approval down the road, their donation becomes tax-deductible.

Conclusions

After holding a board meeting, opening a bank account, filing a Charity Registration, and hosting a fundraiser, the moment of truth finally arrives: you received your nonprofit tax-exempt status! Although it was not an overnight process, you occupied the months leading up to it with events and progress. Now, you can proudly wield your 501c3 approval like a flag. Just remember to thank your board members, donors, and supporters who contributed to your organization during the 501c3 pending period.

If you remain unsure about the tax-exempt status for nonprofits, how long it takes for a 501c3 to get approved, or what you can do while you are pending, please contact CharityNet USA by BryteBridge to speak with one of our nonprofit specialists at 877-857-9002, or email us at info@brytebridge.com. We are happy to help you and your organization succeed in all your nonprofit endeavors.

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