How Long Is The Waiting Period for Nonprofit Tax-Exempt Status?

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Applying for your nonprofit’s tax-exempt status is no small feat. After preparing the IRS 1023 application form, collecting the required information, paying the fee, and hitting submit, you might think everything is complete. Sure, documentation was sent to the IRS, but there is a wait before hearing back. How long is the wait before getting 501c3 tax-exempt status? Well, the answer depends on several factors.

The IRS receives over 80,000 nonprofit applications every year. These forms are in addition to the millions of documents sent to the IRS every year for review. That is a lot of paperwork to review, analyze, and evaluate. While you may hear people say it takes the IRS anywhere from three to six months, these are often only the best guess. The actual amount of time the IRS takes to issue a nonprofit tax-exempt status depends on the time of year form 1023 is submitted, the type of nonprofit, and the complexity of the application.

Submitting a 501c3 application at the peak of tax season while the IRS is processing millions of returns will likely result in a longer wait time. Review time also depends on which application you submitted, the 1023 or the 1023-EZ. EZ applications process faster because they are much shorter and less complex. However, certain nonprofit organizations cannot apply with EZ forms because they require more detailed explanations and schedules. Churches and schools, for example, cannot apply with the 1023-EZ and take longer to process.

Regardless of which application is used or what time of year you apply for nonprofit tax-exempt status, the IRS will take time to review your documents. However, rest assured the IRS will evaluate your 501c3 application in the order it arrived.

Things That Slow Down Your Nonprofit Tax-Exempt Status

Before you submit your nonprofit application, you want to make sure all the information is accurate and clear. Anything causing the IRS agent to ask follow-up questions requires additional time and slows down the IRS nonprofit status approval process. 

A missing schedule, an unclear description of programming, or a typo in the EIN may seem like small, inconsequential mistakes. However, they can lead to massive problems when reviewing a 501c3 application and significantly slow down the approval of your IRS nonprofit status. You must ensure form 1023 is clear, correct, and complete before submitting it to the IRS. The alternative is receiving a letter asking you to provide additional information, which adds another few months to the nonprofit tax-exempt approval process.

Things To Do While Waiting for 501c3 Tax-Exempt Status

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After creating the initial documents and filing for IRS nonprofit status, it can often feel like the startup work is complete. However, there are still several steps to go. While you wait to receive your 501c3 tax-exempt status, fill the time with more productive opportunities for your nonprofit organization.

File State Documents

In most states, applying for federal nonprofit tax-exempt status alone is not enough to start asking for donations. Nonprofit organizations must file additional state documents with various agencies to complete their registration. 

Unlike the initial documents, which, despite naming differences, are uniformly required across the country, state nonprofit document requirements vary wildly. Knowing which nonprofit filing documents your state requires is the difference between a smooth operation and hefty penalties and late fees.

While the process varies by state, the most common state documents are:

  1. Charity Registration: Required to legally ask the public for donations.
  2. State Tax Exemption: Required for exemption from corporate income taxes.
  3. State Sales Tax Exemption: Required for exemption from paying sales tax on purchases.

When and if an organization is required to file these documents depends on the state of operation. Some states allow filing on the same day as applying for IRS nonprofit status. In contrast, others require receiving a nonprofit tax-exempt determination before filing. Since asking for donations often requires filing a charity registration, understanding your state’s document and filing requirements is necessary for the startup journey.

Market Your Nonprofit

Most people starting a nonprofit do so because they’re passionate about their organization’s purpose. This drive is crucial for the organization’s success. However, no matter how devoted the Board of Directors is, without marketing and potential donors, those needing your organization’s services will not know the opportunity exists.

Informing people that your organization exists and giving them a clear understanding of your cause is just as important to a nonprofit organization as it is for a for-profit business. That is why marketing is so vital. Unfortunately, many nonprofit organizations don’t focus enough time or energy on marketing. They often think they can’t afford the cost or that by starting a nonprofit, volunteers and donations will automatically arrive. Without proper nonprofit marketing, not only will potential volunteers and donors not know your nonprofit exists, but they won’t want to engage.

Failure to properly market and communicate your organization’s message is a guaranteed road to failure. The good news is that you don’t need a communications degree to market your nonprofit. You only need a few tools, time, and passion to get the word out.

Start Asking For Donations

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Starting and building any organization requires money, so don’t wait until you receive your nonprofit tax-exempt status to start fundraising. Large donations may not occur until your organization has trackable success stories and credibility. Until then, nonprofit organizations must engage their Board of Directors, family, and friends to provide fundraising support.  

Once the organization’s Charity Registration is approved, any board member or Executive Director’s primary job is asking for donations. Donations are the lifeblood of an organization and the difference between impacting one or two individuals and an entire community.

There are multiple ways to raise funds. Diversifying your fundraising strategy produces the best results because there is no single guaranteed method for donations.

Operate The Nonprofit

Waiting for the IRS to issue 501c3 tax-exempt status does not mean you cannot operate the organization. There is no sense in constantly asking how long it will take the IRS to issue your nonprofit tax-exempt status when you could be fulfilling the organization’s mission. Use the time to begin serving clients or engage the Board of Directors in strategic planning. Use the time wisely, and your organization will greatly benefit.

How Long Is the Wait Before Getting 501c3 Tax-Exempt Status?

If all you do after submitting the 1023 application to the IRS is wait to hear the results, your wait will be very long. However, if you begin operating the nonprofit, filing state documents, asking for donations, and serving clients, the wait will pass by in no time. How you spend the time waiting for your nonprofit tax-exempt is up to you.

If you have questions about anything related to your nonprofit organization or your IRS nonprofit status, contact the specialists at BryteBridge. Our team can answer questions and assist with every need your organization has. Call us at 877-857-9002 or email us at [email protected]. We are ready to help your organization succeed.