There are numerous steps that must be accomplished before the IRS will grant an organization with a 501c3 status. The company must be organized as a corporation and have their articles of incorporation filed with their governing state body before they can even apply for this national level tax-exempt status. There must be programs and structures designed that help to support the general public good within the industry they are joining. Then there is the actual time it takes to fill out Form 1023 and gather together the needed documents.
In general, it may take 6-12 months of preparation to get an organization to the point where it will be able to apply for the 501c3 status. Once Form 1023 has been successfully submitted, it may take up to another year for the status to be officially granted.
There Are Ways to Expedite the Review
The IRS does allow for an organization to receive an expedited review of their 501c3 status application under specific circumstances. The organization must have been newly formed either to provide immediate disaster relief or if a promised grant has been given to the organization, but only if they are able to be tax exempt.
For the IRS to expedite a 501c3 application for a promised grant, the organization must meet two specific criteria.
1. The promised grant must have an expiration date that is specifically defined.
2. The promised grant must be a substantial component of the proposed budget of the organization.
If one of these conditions is not met, then the 501c3 status application will not be expedited and instead be subjected to the standard review. Depending on the size of the company and the extent of the planned programs and services, this could take as few as 2 months or may extend beyond the 12 month period.
There is no guarantee, however, that the IRS will even grant an expedited review even if the organization is able to meet both stipulations. Organizations have no guarantees in the amount of time that even emergency applications will be reviewed. It is not uncommon for an application to sit on hold for up to 8 months before it is ever assigned to a reviewer.
Any time an application is reviewed for more than 180 days, an organization may contact the IRS over the phone to get an update on the status of their application. An update on the status, however, does not mean that there will actually be a hastening of the review process. It just means that an organization can find out if their application has been assigned yet.
Some Organizations Receive Shorter Reviews
Although Form 1023 is an extensive application, there are some organizations which are allowed to file the EZ version of the form. This creates more of a streamlined process for the IRS to review and generally improves the ability for a review to happen faster. There have been some organizations that have received their Form 1023EZ 501c3 status application back as approved in as few as 30 days.
To make sure there aren’t any needless delays to the approval process, it is important to make sure that all of the paperwork and request materials are appropriately filled out. The forms for the application do not need to be notarized, but they are being signed under the penalty of perjury. For this reason, if there is incomplete information or something that seems unusual, the IRS will generally contact the organization in question to determine the actual status of the information under review.
Companies Can Operate as a 501c3 After Their Application
The IRS has not allowed companies to self-declare a 501c3 status for over 50 years. Although certain organizations, mostly churches, are assumed to be a 501c3, all companies that file an application for this status can begin operating as one as soon as the application has been completed. This does not guarantee that an application will be approved or that a state will allow the company to begin soliciting people for donations, however, so many take a wait and see approach.
Sometimes a state version of the 501c3 application must also be filed. This can increase the amount of wait time that is experienced for an approval to be received as well. The IRS does allow an organization to file for the 501c3 status before a nonprofit is fully incorporated, but organizing documents are still required and subject the unorganized company to corporate requirements.
It may be a lengthy wait for some organizations seeking 501c3 status, but when approved, it is definitely worth the wait.