Organizations in search of tax-exempt status in the United States must first be granted 501(c)(3) status from the Internal Revenue Service (IRS). Dallas-based businesses looking to gain nonprofit status must abide by the same IRS regulations as their counterparts in other parts of the country, but questions surrounding local regulations can arise. This helpful guide provides frequently asked questions (FAQs) regarding 501(c)(3) regulations for Dallas-based businesses.

What is 501(c)(3)?

501(c)(3) is an IRS designation for certain nonprofit organizations. It grants tax-exemption status to qualifying organizations, and is primarily used to designate charitable, religious, education, scientific, literary, and other similar organizations. Eligible 501(c)(3) organizations are generally classified as public charities, private foundations, or private operating foundations.

What Are the Benefits of 501(c)(3) Status?

Having 501(c)(3) status provides a number of benefits to a company. For example, 501(c)(3) organizations are exempt from federal and possibly state and local taxes. They also may receive grants and other financial support from corporations and individuals as tax-deductible donations, and they can apply for federal grants that are only available to nonprofits.

What is the Process for Gaining 501(c)(3) Status in Dallas?

The process for gaining 501(c)(3) status in Dallas largely follows the same process as it does elsewhere. The first step is to file an application with the IRS, Form 1023. The application must include detailed descriptions of the organization’s purpose and activities, including a plan for raising and spending funds. Organizations must also provide evidence of their nonprofit status and that their activities fall within 501(c)(3)'s definition of "charitable" activity. Once the application is approved, the organization is given 501(c)(3) status and is able to begin operating as such.

What are the Different Types of 501(c)(3) Organizations?

There are three different types of 501(c)(3) organizations: public charities (also known as public foundations), private foundations, and private operating foundations. Public charities are typically set up to serve the public, such as a food bank or a human services organization. Private foundations are typically established by individuals or corporations to support particular organizations or activities. Private operating foundations are set up to run programs or activities themselves.

Do Dallas-Based Businesses Need a Local Lawyer to Obtain 501(c)(3) Status?

Though the process for obtaining 501(c)(3) status in Dallas is largely the same as it is elsewhere, it is always advisable to work with a tax-exempt status lawyer experienced in the local laws and regulations. A knowledgeable attorney can help to ensure that organizations are compliant with state and local regulations and that they are in line with IRS regulations.

What Happens if an Organization’s 501(c)(3) Status is Revoked?

A 501(c)(3) organization that has its status revoked must immediately inform the IRS. The organization is then required to pay income taxes on all income and must also file Form 990-T, a detailed form that lists income from unrelated activities and reports any taxes paid. In addition, any donors who contributed to the organization during the period when it had 501(c)(3) status must be informed of the revocation, as their donations are no longer tax-deductible.

What Should Dallas-Based Businesses Do if They Have More Questions about 501(c)(3) Regulations?

Dallas-based businesses in search of 501(c)(3) status should consult an experienced tax-exempt status attorney. Businesses can find experienced attorneys through websites such as UpCounsel. UpCounsel's network of experienced business lawyers can provide one-time consultation or an entire freelance legal team, giving businesses the support they need to understand local regulations and ensure their 501(c)(3) status is compliant with IRS regulations.

Topics:

501(c)(3),

IRS Regulations,

Nonprofit Status