IRS Publication 557: How to Win Tax-Exempt Status

What Is IRS Publication 557: Tax-Exempt Status for Your Organization?

IRS Publication 557 is a document issued by the Internal Revenue Service (IRS) that details the steps to apply for and maintain tax-exempt status. For non-profit organizations, obtaining tax-exempt status is essential as it means they can avoid paying any federal income tax on their earnings.

Types of organizations that may qualify for tax-exempt status according to IRS Publication 557 include charitable groups, religious institutions, universities and colleges, social welfare organizations, and animal shelters. 

Understanding IRS Publication 557: Tax-Exempt Status for Your Organization

IRS Publication 557 serves as a comprehensive guide for organizations seeking tax-exempt status under sections of the Internal Revenue Code. It also details the filing and disclosure requirements for people who contribute to tax-exempt organizations. 

Key aspects of IRS Publication 557 include eligibility criteria, how to apply for and maintain tax-exempt status, and filing requirements. The document highlights the forms and documents necessary for tax-exempt status, which may include: 

• Form 1023 (Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code).
• Form 1023-EZ (Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code)
• Form 1024 (Application for Recognition of Exemption Under Section 501(a))
• Articles of Incorporation 
• Financial statements
• Form 990 (Return of Organization Exempt From Income Tax) 

IRS Publication 557 may not, however, include information needed for the management of your specific tax-exempt organization. 

Organizations including corporations organized under acts of Congress, teachers' retirement fund associations, mutual insurance companies, employee-funded pension trusts, withdrawal liability payment funds, or religious and apostolic associations are covered by other documents.

IRS Publication 557 includes a reference chart that details what section of the Internal Revenue Code applies to an organization qualifying for tax-exempt status and the forms that must be filled out in order to apply.

The IRS updates the document frequently, with any new rules or changes highlighted at the top of its website. 

Utilizing Publication 557

If you’re seeking tax-exempt status for your corporation under 501(c)(3) of the tax code, then the IRS Publication 557 is a critical resource. It will help you determine if your organization qualifies, and how you should go about applying for tax-exempt status. 

For example, the publication directs you to submit Form 1023-EZ if your organization is small, with assets of $250,000 or less and annual gross receipts of $50,000 or less.

If your organization doesn't meet the size requirements for filing Form 1023-EZ, you will then have to apply for tax-exempt status using either Form 1028 or Form 8871. If you use either of these forms, then your application should include a copy of the organizing documents from when the organization was created, and signed by the principal officers.

The application should also include a detailed, written description of the organization's activities, including the means and extent of fundraising, and what standards and goals you will apply to the organization's activities. 

You should also include any financial statements your organization produces for the current year, and the three preceding years, before filing the application.

The Bottom Line

IRS Publication 557 is a useful guide for information on how to gain and keep tax-exempt status, allowing an organization to completely avoid paying federal income taxes on earnings. The publication details the required paperwork, the appeals process for denied applications, and reasons for revocation of tax-exempt status. 

If your organization is trying to gain or keep its tax-exempt status, it’s best to carefully review IRS Publication 557 with the assistance of a tax advisor or business attorney. The IRS also offers a free helpline at 1-800-829-1040 if you wish to speak to a live person at the IRS for questions about federal taxes.