501(c)(3) Tax-Exempt Status for Wyoming Nonprofits
How Nonprofits Obtain 501c3 Tax-Exempt Status
For nonprofits in Wyoming and elsewhere, obtaining 501c3 tax-exempt status is no small feat. As you might imagine, many people think that all nonprofits are tax-exempt, and to some extent in Wyoming this is true: Wyoming corporations (nonprofits are a type of corporation) pay no state corporate tax. However, without a tax-exempt certification from the IRS, every nonprofit, even those in Wyoming, must pay corporate tax to the federal government.
If you’re planning on starting a nonprofit, you’re likely mulling over potential avenues of income and wondering about the possibility of tax exemptions, a status synonymous with nonprofit entities. Right from the start, however, you should know that obtaining tax-exempt status is not easy, and many smaller nonprofit corporations pay taxes like their for-profit corporate counterparts. Although the IRS does approve well over half of the applications it receives from nonprofits seeking 501c3 tax-exempt status, at least as many applications are started and never finished. This is because the application process can be confusing, maddening, and can take up to a year, even if you’ve filed everything required on your end in a timely fashion. The process is, in a word, a grind. But for those who are passionate about their nonprofit and are willing to spend the time completing the application process, tax-exempt status could be extremely beneficial to the longevity of your nonprofit. Below, you’ll find the steps and information to put you and your nonprofit organization on its way to a tax-exempt future.
Steps to Applying for 501c3 Status
- Incorporate your Wyoming nonprofit organization
File your articles of incorporation with the Wyoming Secretary of State to form a Wyoming nonprofit. In the articles, you will need to include the specific language recommended by the IRS (you can view the language on our main Wyoming nonprofit page).
- Obtain an Employer Identification Number from the IRS
This can be done online on the IRS website. You will be issued an EIN (federal tax ID) for your nonprofit after answering a few simple questions, and it is free.
- File Form 1023 with the IRS
This will be one of the most arduous applications you’ve ever completed. There are books on filing this 12 page application and although reading one of these books or hiring professional help to complete the form is not required, you may want to consider doing so (below, you’ll find a description of the form and each of its sections).
How to Complete 501c3 Form 1023
Form 1023 Filing Fee: $850; or $400 if organization expects less than $40,000 in gross receipts in the first 3 years.
Before you start on Form 1023, you will want to do plenty of research ahead of time. People have made businesses out of helping others complete the form, so if you feel you need professional help, it is available. These businesses usually charge around $2000 as a base fee for helping clients through the application process. For those who want to attempt the form on their own, however, you’ll find a preliminary Form 10 23 walkthrough below:
There are 11 separate parts to the 12-page application and below you’ll find a brief outline to help you through the application:
- Part I
Basic contact information for your nonprofit corporation. It is thorough, but fairly basic. You’ll need to include your EIN, as well as any of your nonprofit’s recent tax filings.
- Part II
Explain your nonprofit’s organizational structure. You’ll need to attach copies of your articles of incorporation and your bylaws.
- Part III
Confirmation that your articles of incorporation contain the passages of wording required by the IRS. If not, you will need to amend your formation documents so that they reflect the requirements.
- Part IV
Write a narrative describing your nonprofit corporation’s activities. Look to capture your nonprofit by describing what problem your organization addresses, and thoroughly cover all the who’s, what’s, where’s, when’s, and how’s of the nonprofit’s inceptions. You’ll also need to explain any alternative names your nonprofit previously operated under, and any activities your nonprofit will engage in.
- Part V
This section focuses on financial compensation. It is the largest section in the application and is extremely specific. IRS reviewers will also be examining the relationships of board members (you will want at least three unrelated members on your nonprofit’s board). Be prepared to answer and consider questions focused on exactly how each dollar will flow through your organization.
- Part VI
Here is where you describe to whom your nonprofit corporation will be offering its services. There are “yes” or “no” checkboxes here, but you will need to write out a description of your clientele and any limitations that will be put in place.
- Part VII
This part addresses your organization’s history—whether your organization is a successor to another organization—and whether you’re filing this form 27 months after you legally formed your organization.
- Part VIII
In this section you’ll need to answer another series of “yes” or “no” questions which will further classify whether your nonprofit can qualify for 501c3 status. Be aware that if your organization does want to attempt to influence legislation in any way, your organization cannot qualify. Before completing this section, make sure you understand all regulations concerning what activities in which a 501c3 organization is allowed to participate.
- Part IX
The purpose of this section is to give the IRS an accurate financial description of your nonprofit organization’s past, present, and future. In this fiscal representation there can be no gaps in time. You’ll need to show four years of your organization’s financial past. If your organization has been operating for less than a year, you’ll need to be able to make projections for the next two years.
- Part X
The answers to the questions in this section will help the IRS to determine whether your nonprofit is a public charity or a private foundation. A private foundation is an organization that receives most of its support from a limited number of sources. These foundations must pay a one or two percent tax on interest, dividends, capital gains, and are subject to a variety of restrictions that dictate how the organization can invest and how the operation is conducted. In general, being designated as a public charity can be much more beneficial to a nonprofit organization. Some nonprofit corporations are charities simply by the activities in which they participate. Examples of these are churches, many public safety organizations, hospitals, and schools. Also, if at least one third of your nonprofit’s revenue comes from the general public, then by default, your organization will be classified as a public charity.
- Part XI
This is the final section of Form 1023, and it’s all about money. But not your money. You need to pay the IRS to examine the filing. The fee is $400 for organizations that bring in annual revenues of less than $10,000 annually. Organizations that take in more than $10,000 annually will need to pay a fee of $850.
If you’ve completed the application process, a huge congratulations is in order. Once the form is filed, though, do not expect a fast turnaround, as you may have to wait up to nine months before hearing from the IRS. When the IRS does contact you, you may have to answer more questions or clarify information on the application (this idea alone should compel you to keep impeccable records). But if you keep your information organized and on hand, you should be able to answer any questions, and soon your nonprofit organization will be enjoying the benefits of a 501c3 tax-exempt existence.