A charitable corporation is created and its status is approved under
state law. But they never file Form 1023 (and to qualify as a charity
under federal law they would need to). They bring in substantially
more than $5,000 (but not more than $50,000).
I'm convused about what form they will file with the IRS. Do they file
a 990? Or 990-T? Or perhaps an 1120?
Thanks for any insight.
Here's my understanding on how it works.
First you apply to the state to incorporate as a nonprofit. Once you
get your articles of incorporation from the state, you create your
bylaws and hold your first board meeting. Then you apply to the feds
using Form 1023 to get recognized as being tax exempt under 501(c)(3).
I know that almost all of the states will recognize the federal
exemption. I also know that my state of CA and also TX do not. You must
apply separately in those two states after you receive the federal
As you mentioned the $5K amount, you are aware that certain nonprofit
corporations are not required to file a Form 1023 to be exempt. There
is a gross receipts test. Here is how the IRS explains it:
======================================================================Gross receipts are the total amounts the organization received from all
sources during its annual accounting period, without subtracting any
costs or expenses.
For purposes of the gross receipts test, an organization normally does
not have more than $5,000 in annual gross receipts if--
During its first tax year the organization received gross receipts of
$7,500 or less,
During its first two years the organization received a total of $12,000
or less in gross receipts, and
If an organization has existed for at least three years, the
organization received a total of $15,000 or less in gross receipts
during the immediately preceding two years plus the current year.
======================================================================If you fail the test, you are not tax exempt until you file that 1023
and get the IRS approval.
As to tax filing, they would only need to file the 990-N. This
presupposes that they will be tax exempt. Technically, if they fail the
gross receipts test, then they would not be tax exempt until they
process the 1023 and get the approval.
I have run into non-profits that filed the 900-N after submitting the
1023 and before receiving the IRS approval.
Somewhere in the dark recesses of my aging mind I remember reading or
having a conversation somewhere that those organizations who pass the
gross receipts test and opt not to file the 1023, are precluded from
advertising in any solicitation that they are tax exempt as a 501(c)(3)
entity. I have no substantiation on this remembrance.
Here's a little more information I learned since I first posted:
They didn't file a 1023 because they won't qualify as a (c)(3) in any
case. They should be filing a 1024, but they didn't know about that,
so they didn't do anything.
For a nonprofit that files a 1023, exempt status will be retroactive to
the date of incorporation if it was filed within 27 months of
incorporation. So filing a 990-N would likely be proper in that case.
They may be tax exempt, but my understanding is that even if they
qualify as a nonprofit under 501(c)(3), if they don't file a 1023,
contributions are not deductible for the donor.
I'm still confused about which return to file, though. If they don't
qualify because they haven't filed and fail the income test, do they
file an 1120 or a 990-T?
The instructions for the 990-T don't talk about this situation at all,
so for now I'll assume they file an 1120.
If they are tax-exempt under sec. 501(a) (File Form 1024 and get
approved), then they are into the 990 series of forms. Under $50K gross
receipts puts them on a 990-N.
If they are going to file the 1024 and there is a good chance that it
will be approved, I would not file the 1120.
990-N would be the annual return to file, BUT
Organizations that intend to operate under section 501(c)(4) have 60 days from the date created to notify the IRS that they intend to operate under 501(c)(4) This notice is provided electronically, using Form 8976, at
are penalties for failure to file the notice. See Revenue Procedure 2016-41 for details.